California Grocer Issue 2, 2019 by California Grocers Association

California

Grocery Fraud Or how a stapler can rob you blind PAGE 34

Turning over a new leaf 2019, ISSUE 2

CALIFORNIA GROCERS ASSOCIATION

Balancing food packaging and the environment page 28

PAGE 52

CONTENTS | ISSUE 2

FEATURES

28 Balancing Food Safety and the Environment Packaging is normal, necessary and simple. But with rapidly changing considerations by consumers and their political leaders that include climate change, waste reduction, reusability and sustainability is food packaging still a simple thing? Or, has it always been complicated?

MEET TRACY LAPE – NEW ILLUMINATOR HEADLITE

COLUMNS President’s Message Calling All Grocers. . . . . . . . . . . . . . . . . . . . 4

34 Grocery Fraud Or, How a Stapler Can Rob You Blind What’s your battle plan against the forces of grocery fraud? Do you have adequate intel and situational awareness to win the war? Have you donned the strongest armor and ignited the most successful combat tactics?

42 Foundation Honors Industry Icons Two industry leaders with strong ties to the California Grocers Association were recently inducted into the CGA Educational Foundation Hall of Achievement. Learn more about these two deserving inductees.

Chair’s Message Advocacy is What We Do. . . . . . . . . . . . . . . 6 Viewpoint Kvetching Up With Amazon’. . . . . . . . . . . . . . 8 Government Relations The Nuances of Food Packaging . . . . . . . . 10 Capitol Insider Legislature Begins Charting Its Course. . . . . . . . . . . . . . . . . . . 14 Inside the Beltway Protecting Retailers’ Confidential Business Data. . . . . . . . . . . . . 22 Washington Report Fixing the Retail Glitch .. . . . . . . . . . . . . . . 24 Mommy Blogger Tighter Purse Strings Make for Tough Choices. . . . . . . . . . . . . . . 60

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

52 Turning Over a New Leaf

Outside the Box New Retail Perspectives . . . . . . . . . . . . . . . 26 Know the Law New Challenges in Hiring Independent Contractors. . . . . . . . . . . . . . 57 Index to Advertisers. . . . . . . . . . . . . . . . . . 59

New Leaf Community Markets may be one of the more progressive grocery retailers in Northern California, thanks in large part to its commitment to sourcing natural, organic and local sustainable products. CAL I FO RNIA GRO CER | 1

CGA | BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

CHAIR APPOINTMENTS Independent Operators Committee Chair DIRECTORS

CALIFORNIA GROCERS ASSOCIATION

Chair Kendra Doyel Ralphs Grocery Company

Second Vice Chair Hee-Sook Nelson Gelson’s Markets

Secretary Dennis Darling Foods Etc.

First Vice Chair Phil Miller C&S Wholesale Grocers

Treasurer Renee Amen Super A Foods

Immediate Past Chair Bob Parriott Twain Harte Market

Kevin Arceneaux Mondelēz International Inc.

Dave Jones Kellogg Company

Lynn Melillo Bristol Farms

Mark Arrington Post Consumer Brands

Saj Khan Nugget Markets

Tim Murphy Costco Wholesale

Scott Silverman KeHE Distributors

Denny Belcastro Kimberly-Clark Corporation

Greg King California Fresh Market

Skip Nugent Best Buy Markets IGA

Lee Smith Smart & Final Stores

Jeanne-ette Boshoff MillerCoors

Nancy Krystal Jelly Belly Candy Co.

Nicole Pesco The Save Mart Companies

Rick Stewart Susanville Supermarket IGA

Bob Bukovec Tyson Foods, Inc.

Michel LeClerc North State Grocery Inc.

Bob Richardson The Clorox Company

Joe Toscano Nestlé Purina PetCare

Pamela Burke Grocery Outlet, Inc.

Hillen Lee Procter & Gamble

Mike Ridenour The Kraft Heinz Company

Rob Twyman Whole Foods Market

Brent Cotten The Hershey Company

John Mastropaolo Chobani, Inc.

Casey Rodacker Mar-Val Food Stores

Jim Van Gorkom NuCal Foods

Willie Crocker Bimbo Bakeries USA

Jonathan Mayes Albertsons Companies, Inc.

Jaclyn Rosenberg Nielsen

Michael Walton Unilever

Steve Dietz United Natural Foods, Inc.

Joe McDonnell Campbell Soup Company

Jeff Severns PepsiCo Inc.

Richard Wardwell Superior Grocers

Jake Fermanian Super King Markets

Mark McLean CROSSMARK

Greg Sheldon Anheuser-Busch InBev

Karl Wissmann C & K Market, Inc.

Damon Franzia Classic Wines Of California

Casey McQuaid E & J Gallo Winery

Kevin Young Young’s Payless Market IGA

David Higginbotham Stater Bros. Markets

Doug Minor Numero Uno Market

Jeff Sigmen Reyes Coca-Cola Bottling LLC

President/CEO Ronald Fong

Senior Director Events & Sponsorship Beth Wright

Elliott Stone Mollie Stone’s Market

Senior Vice President Marketing & Business Development Doug Scholz Vice President Communications Dave Heylen Vice President Government Relations Kelly Ash Executive Director CGA Educational Foundation Shiloh London Costello, CFRE

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Senior Director Government Relations Aaron Moreno Director CGA Educational Foundation Brianne Page Director Digital Communications Nate Rose Controller Gary Brewer

California Grocer is the official publication of the California Grocers Association. 1005 12th Street, Suite 200 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.

CAL I FO RNIA GRO CER | 3

PRESIDENT’S MESSAGE

Calling All Grocers

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

April is upon us, which means CGA shifts into high gear when it comes to its advocacy efforts in the State Capitol. Between CGA’s annual Grocers Day at the Capitol and legislative committees at the peak of their churn in order to meet May’s deadlines, this month is always a busy one. And although it’s repeated every April that member participation in our advocacy efforts is important, it’s always worth repeating: Your advocacy efforts are so very important this year. The Association is sponsoring two important pieces of legislation this year. The first is SB 724 by Sen. Henry Stern (D-Thousand Oaks). This measure is a reintroduction of SB 452, which would have provided a temporary reprieve for grocers from sanctions resulting from mass recycling center closures, along with other fixes that would have provided stability for the Beverage Container Recycling Program.

easily through the Legislature this year as it did last year, with Gov. Newsom taking a different tack and signing it into law. The other CGA-sponsored measure is AB 1171 by Assemblymember Phillip Chen (R-Yorba Linda). This measure would provide a rational framework for local governments that choose to impose ordinances that limit or require the type of materials grocers use for food packaging. While a majority of local jurisdictions have recognized some of the unique limitations grocers have when it comes to changing food packaging, some have made it nearly impossible for grocers to comply with the ordinances they pass.

For example, the City of Santa Monica recently put a law on the books requiring “marine degradable” materials be used for any food packaging in the city. While this may sound like a laudable goal, the reality is that “marine degradable” is a standard that does not exist. CGA member participation at Grocers Day will help make the case for these measures as it allows grocers to bring their subject matter expertise to legislators and staff. It also allows for CGA members to offer themselves up as resources for any other food related matter, which only serves to strengthen relationships between legislators and our industry. ■

Though the bill passed the Legislature with near unanimous votes in both houses, it was ultimately vetoed by Gov. Jerry Brown. We are hopeful the measure will pass as iStock 4 | CAL I FOR N I A G R OC E R

CGA Strategic Conference

September 29 - October 1, 2019 Palm Springs, California

...great opportunity to network...I learn something new every time I attend... â&#x20AC;&#x201C; KEVIN ARCENEAUX, MONDELEZ INTERNATIONAL

'' What I love most about the CGA Strategic Conference is the amount of business you can accomplish in such a short time.,' â&#x20AC;&#x201C; PAT POSEY, BRISTOL FARMS

Each year, the California Grocers Association presents contemporary voices that uncover the emerging trends that will influence your business next. Together with executives from leading retailers and brands, the CGA Strategic Conference provides a meaningful opportunity to build your business in the nation's largest grocery marketplace.

Plan to be there this fall. A limited number of sponsorship opportunities are available, visit cagrocers.com for more information or call (800) 794-3545.

CAL I FO RNIA GRO CER | 5

CHAIR’S MESSAGE

Advocacy is What We Do

K EN DR A DOY EL R ALPHS GR OCERY CO./FOOD 4 LE SS/FO O DSCO

Advocacy is often defined as public support or a recommendation of a cause or issue, and CGA knows how critical and impactful it can be. Advocacy is at the very center of what our Association does, and we must continue to recognize the power and importance of staying diligent to the issues. Ensuring that decision makers understand the impact and ramifications of the work they do on our business, our associates, and our customers requires constant focus and communication. We know advocacy comes in many forms and fashions. Often, we are playing defense as we learn of efforts to affect our business that are in the works and moving forward.

iStock

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This work can be hectic and force us to make quick decisions to effect change. Ideally, an approach in advance of an issue where we educate others drives greater results that are well thought out and mitigate a great deal of unnecessary work and problems. We know that we will always have a mixed bag of approaches and recognize the need for both. Another powerful form of advocacy comes in the way we advocate for others around us. That might be an up and coming associate, a friend or colleague, or just someone that needs that little extra boost to realize their

“Advocating on behalf of others for their personal and professional growth is rewarding and important.”

full potential. Many have been marginalized over the years, and each of us can break down barriers for others and destroy dated thinking. Advocating on behalf of others for their personal and professional growth is rewarding and important. We all have benefitted from it in the past and may need someone to do that on our behalf in the future. Supporting others is advocacy at its finest. I am truly grateful for all the work the Association does for our industry, and I am keenly aware that none of it is possible without your willingness to advocate for the issues that matter most. The work you do on behalf of CGA drives results for our business, your bottom line, your associates, and your customers. Thank you for taking the time to make critical change, empower others, and advocate again and again to help our industry remain relevant and flourish today and in the future. ■

We are committed to ending hunger in our communities and eliminating food waste in our company by 2025. Follow our journey at

TheKrogerCo.com and #

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VIEWPOINT

Kvetching Up With Amazon

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

I focus on Amazon not to celebrate its successes, though there are plenty of reasons to do so. I’ve been doing this a long time, and no matter the venue for my writing and speaking (some call it punditry, others call it bloviating), I try to be sensitive to my readers and audiences. To a point. Sometimes, in the words of the late, great Tom Petty, I just won’t back down. I can’t. About 20 years ago, I went to Toronto, Canada, to speak to a trade association representing small variety stores. (How I got that gig I have no idea.) But I like Toronto, the Blue Jays were in town, and so I took my then 12-year-old son with me so we could catch a ballgame. We drove, and swung by Niagara Falls on the way up, and Cooperstown on the way back. Totally cool trip…except that one of Brian’s main memories is my almost getting into a fight during my speech. You see, I was talking – even back then – about the changing face of retail and telling them about a little company called Amazon that I thought would have an impact on every retailer because it would have an impact on every shopper. (Pretty good, huh? Don’t be too impressed, though. Thirty years ago, I thought that an urban retail

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food format called J. Bildner & Sons was going to take over the world. I really got that one wrong…) Anyway, as I spoke about Amazon, one of the guys in the audience (Brian remembers him as being a pretty big guy, and not one of the usually friendly Canadians) stood up and yelled at me, “You’re not telling us what we want to hear,” and I responded (politely), “Sir, my job isn’t to tell you want you want to hear. My job is to tell you what you need to know.” (The good news – he didn’t hit me. Which is what Brian was worried about, since he was too young to get in the car and drive himself home.) I thought about that exchange recently when I was at the National Grocers Association (NGA) Show in San Diego – which was a pleasure to attend for lots of reasons, not least of which was that the temperature was 25 degrees back home in Connecticut. I was walking from one session to another at the convention center when someone stopped me to say that he was a regular reader of MorningNewsBeat, and really liked it, “Except,” he said, “that you are such an Amazon cheerleader.” This wasn’t the first time I’ve heard this, and I responded as I often do. First, I said, you need to know that I do not own any

Amazon stock, have never owned Amazon stock, and based on its price ($1,648 a share, as I write this), I never will own any Amazon stock. (Not that my “cheerleading” would have any impact on its stock price.) Second, I made him a promise: “When Amazon stops innovating,” I said, “I’ll stop writing about it.” The thing is, I know that there are retailers out there who find all the Amazon coverage – not just mine – to be tiresome. I would argue, however, that these retailers may not appreciate the degree to which Amazon’s disruptive habits are creating new consumer habits, which in turn create new competitive realities with which they will have to contend. Like it or not. Think about it. Experts now are forecasting that by the end of this year, 51.3 percent of U.S. households will be Amazon Prime members. That’s right. More than half of US households are part of Amazon’s vaunted ecosystem. Amazon must be doing something right. Now, it has become something of a popular sport in certain circles – especially the circles made up of people not particularly good at competing with it – to speculate that Amazon essentially is an unsustainable house of cards that eventually will fall apart.

VIEWPOINT

trying to play the same game as the New York Yankees, but by playing the game in a different way. And it works.) To me, the people who want me to stop writing about Amazon are in a kind of denial both about the powerful value proposition that the company continues to make and grow, and about my reasons for writing and talking about it.

iStock

“Amazon’s weaknesses actually create opportunities for traditional bricks-andmortar retailers to build on what should be their strengths and develop what should be differential advantages.” Some recent missteps have thrown fuel on the fire. Like the company’s decision to pull out of New York City, cancelling its plans to build one-half of its HQ2 there. Some argued that Amazon couldn’t stand the heat of local opposition, which may be true, though I’d suggest that neither Amazon nor city officials did a very good job of telling the story about why it was a good idea for Amazon to have a major presence there. And then, of course, there were CEOfounder Jeff Bezos’ personal travails. (The less said about that the better. It proved only that Bezos actually is a human being, not a cyborg. Go figure.) When Walmart posted what seemed to be better sales growth than Amazon in the recent quarter, you’d think that a stiff wind from Bentonville was about to scatter the Amazon house of cards; people actually were speculating that Amazon had met its match.

There’s no question that Walmart has gotten its online act together, Amazon is not exactly hurting…just its annual growth last year was more than most retailers’ total annual sales. The rate may have slowed a bit – which makes sense since other retailers have gotten better, which they always were going to, and I’m pretty sure Amazon isn’t surprised – but I wouldn’t be feeling complacent, and I certainly wouldn’t be planning any funerals.

I focus on Amazon not to celebrate its successes, though there are plenty of reasons to do so. Rather, I believe that it is only through an appreciation of what Amazon does well that the competition can figure out what it does badly. Much of the time, Amazon’s weaknesses – such as fresh food – actually create opportunities for traditional bricks-and-mortar retailers to build on what should be their strengths and develop what should be differential advantages. Though I’d move quickly. Amazon tends to only get better at stuff, and so the window for establishing advantages and creating one’s own ecosystem may not be open forever. I repeat: When Amazon stops innovating, I’ll stop writing and talking about it. Except that it occurs to me that this probably isn’t true…because when Amazon stops innovating, that’ll be the real news. ■

Besides, Amazon isn’t just a retailer. In my view, it is playing an entirely different game, creating this ecosystem that involves retailing, but also so many other facets of consumers’ lives that it will be difficult to compete against. That doesn't mean you can’t compete against it, but you’d better bring your ‘A’ game and you’d better play on a different level than Amazon does. (Go read “Moneyball,” or watch the movie. The Oakland A’s were successful not by

CAL I FO RNIA GRO CER | 9

GOVERNMENT RELATIONS

The Nuances of Food Packaging

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

The quest to reduce plastic waste has picked up steam in recent years. A number of years ago, CGA worked with the State Legislature to eliminate singleuse plastic bags at grocery stores after municipalities statewide started passing such bans at the local level. With this patchwork of slightly different ordinances from city to city, it made the most sense from a policy perspective to seek uniform reduction of this significant source of plastic from the waste stream. This year the state’s grocers find themselves in a curiously similar situation, only this time the topic is packaging. To date, there are more than 120 local governments throughout California that have passed ordinances to reduce, or in

some cases eliminate, the use of certain types of materials used to package food and other consumer products. As with single-use plastic bags, some ordinances are more draconian than others with some jurisdictions being less understanding about the needs of the grocery community than others. With packaging, grocers have been more than willing to work with local governments to help craft ordinances balancing the idealistic desires of elected officials and environmentalists to reduce plastic and other undesirable packaging materials as quickly as possible, with the realities of supply chains and other factors grocers face in selling the safest food of the highest quality.

While it may be easy to eliminate plastic use in to-go utensils and straws, or foam used for food packaged for take-out from a place such as a restaurant, the elimination of such materials in grocery food packaging is a more nuanced discussion. I recently visited a legislative office talking about this very topic, making the point in person that I made in the paragraph above. The example I used to illustrate the nuances of food packaging was rotisserie chicken (also, mmm…rotisserie chicken). I explained that there were local governments that had eliminated the use of plastic for food packaging in grocery stores and mandating the use of compostable material in said packing. Continued on page 12 ▶

“In the coming session, legislators will be making many tough decisions when it comes to the use of certain packaging materials.” iStock 10 | CAL I FOR N I A G R OC E R

We proudly serve our communities in times of crisis.

Through donations of time and resources, we support our neighbors in even the most difficult circumstances. $400,000

was donated by Raley’s in cash and product to fire relief efforts.

$280,000

was donated by customers in fifteen of our stores to North Valley Community Foundation.

$350,000

was donated by our vendor partners in food.

$6,700

was donated through the sales of 8,192 Resilience IPA’s in partnership with the Sierra Nevada Camp Fire Relief Fund.

85,000

brown bags were donated by Raley’s Food For Families to help elementary schools provide weekend groceries for displaced students.

We’re here to help. raleys.com/give CAL I FO RNIA GRO CER | 11

GOVERNMENT RELATIONS

◀ Continued from page 10

What might that policy decision have to do with rotisserie chicken? Well here’s a snippet of the conversation I had with the legislative staffer who mentioned in passing that they really enjoyed rotisserie chicken. Me: You know, in a city that bans plastic and mandates compostable food packaging effectively guarantees that a grocery store can no longer sell rotisserie chickens. (A puzzled look appears on the staffer’s face.) Staffer: Really? Why is that? I don’t quite follow… Me: Well, what are the two things necessary to compost stuff? Staffer: Heat and moisture. Me: And what, basically, is in that plastic vessel that holds your rotisserie chicken in the warmer until you buy it? Staffer: Heat and moisture…

Were this a cartoon, a lightbulb would have appeared above her head with a “ding” of enlightenment. But reality being what it is, she honestly paused as everything came together in a moment of clarity when it came to food packaging for grocers. “I honestly never thought of that,” the staffer concluded when I explained the conundrum of the rotisserie chicken. I tell this story because of its importance in the greater discussion on reducing the use of single-use plastic in consumer products – food included. A lot of people have never stopped to think about the science that goes into packaging the food you buy at your local supermarket. Many grocery companies have taken steps to reduce waste in an effort to embrace environmental sustainability, which is often good for business, but never at the expense of the quality of the food they sell. Grocers take the responsibility of feeding their customers

very seriously. It is a shibboleth that requires them to provide the safest food that lasts the longest. (Side note, but related to environmental sustainability. It is important to remember that the largest source of wasted food is people throwing away uneaten food at home. The packaging grocers use can prevent much of that waste if it allows food to remain edible for a longer time.) In the coming session, legislators will be making many tough decisions when it comes to the use of certain packaging materials. As has been the case with other environmental policy initiatives, grocers remain willing to do what they can to help policymakers achieve their goals so long as those goals don’t make it impossible to provide the safest products for their customers. So, legislators…if you’re reading this, don’t forget rotisserie chicken! ■

June 5, 2019 Foxtail Golf Club, Rohnert Park

Gather with independent grocers for a round of golf and networking!

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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

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CAPITOL INSIDER

Legislature Begins Charting Its Course LO UI E B ROW N IN T HE S ACR AME N TO OFFICE O F K HAN, S OAR ES AN D CON WAY, L L P

The California Legislature is back in full swing. High on its agenda will be privacy and singleuse plastics. Brown

The 2019 Legislative session is in high gear. Nearly 2,600 bills have been introduced, which averages just over 21 bills per member. Many of these bills are “spot bills,” or placeholders which will soon be amended into something more substantive, at which time the true intention of the author will be known. Some bills will simply go away. Others will become a two-year bill, since this is the first year of the two-year session. However, most will soon begin the committee process and proceed through the system. As bills are introduced, topic areas begin to materialize illustrating where the Legislature intends to focus its energy. This year the topic areas include privacy and data protection, energy and the future of our publicly owned utilities, independent contractors, Dynamex; affordable housing; and single-use plastics. While all these issue areas will likely impact the grocery industry, how the Legislature deals with privacy and single-use plastics is top of mind to your advocacy team. Last year, the Legislature passed “compromise” legislation on privacy issues late in the session. It was compromise

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because all parties supported the measure, which doesn’t necessarily mean they agreed with it. The legislation was drafted as an alternative to a poorly written ballot measure that had qualified for the November 2018 election. But for the legislation, a $100 million campaign would have ensued with no promise that the initiative would be defeated. The legislation was also passed with assurances that cleanup would happen in 2019 to address outstanding issues. Recent informational hearings on the outstanding issues highlighted the differences in the two sides of this issue and begin to show how difficult clean up legislation might be. On one panel before the Senate Judiciary Committee, representatives from Consumers Union and the California Chamber of Commerce testified. The issues and solutions identified by the two witnesses couldn’t have been more different. There is little doubt a bill will get to the Governor addressing many of the issues left unanswered in the 2018 legislation. What remains to be seen is whether any balance can be achieved when trying to strengthen

an individual’s say over their personal data versus the interests of technology and business to advance. The war on single-use plastics is raging. Whether it’s a not so subtle hint in the movie Aquaman or just a segment on the evening news, waste from plastic is top of mind. This year the Legislature has a package of bills tackling the issue. Senator Ben Allen (D-Los Angeles) and Assembly Lorena Gonzalez-Fletcher (D-San Diego) have identical bills to create the “California Circular Economy and Plastic Pollution Reduction Act.” These bills would require CalRecycle to adopt regulations that reduce and recycle 75 percent of the single-use packaging and products sold or distributed in California by 2030. All singleuse plastic products would be required to be recyclable or compostable by 2030. Food packaging will ultimately become part of this discussion. As with plastic bags in recent years, we are facing the tidal wave of local ordinances dealing with food packaging. We need a consistent policy on food packaging that recognizes the important role our industry plays to reduce waste and enhance food safety. We will be working with the authors of these two bills and stakeholders to end this patchwork of policies. ■

CA LAW The sale of tobacco products including e-cigs is prohibited to persons under 21.

CGA NEWS

CGA BEGINS NEW ERA IN DOWNTOWN SACRAMENTO Association and Foundation move their headquarters to historic office building. After extensive renovations, the California Grocers Association opened its new, member-owned offices located just steps from the State Capitol in the heart of downtown Sacramento. The Association purchased the 20,544 square three-level historic building in 2015, and began renovating in 2018. CGA’s offices occupy the second floor, with additional tenant space, meeting rooms and storage in the lower level. The ground floor features retail outlets. “It is California to its core – new and old, traditional and nonconformist all at the same time,” says CGA President and CEO Ron Fong, said referring to the building’s Spanish colonial revival exterior and its clean office spaces featuring restored wood beams and exposed brick. “The space feels fitting as the physical embodiment of a grocery industry that has deep roots, yet also encompasses a market being rapidly transformed by new technologies.”

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CGA NEWS

For practical purposes, the new building represents more than nice aesthetics. It features room for focused and private work, as well as plenty of space for collaboration and team work. And, there are material benefits as well. Owning a building in the city’s revitalized urban center presents an opportunity to mitigate the risk of ever-increasing rent costs and to reap the proceeds of continued growth down in the future, Fong says. “Ownership is a sound investment for the Association,” he adds. “It represents the steadfast position of the industry and a base from which CGA can better serve California’s community of grocers.” The new office is located at 1005 12th Street, Suite 200, Sacramento, Calif. 95814. The telephone (916-448-3545) and fax (916-448-2793) numbers remain the same.

NEW MEMBERS CGA welcomes the following members:

Dons Market PO Box 255 Santa Ysabel, CA 92070-0255 Contact: Scott Brown, General Manager Phone: (760) 765-3272 Website: www.donsmarketsantaysabel.com

Retail Data Systems 600 N Market Blvd Ste 5 Sacramento, CA 95834-1257 Contact: Robert Hilliard, General Manager E-mail: rhilliard@rdspos.com Phone: (279) 444-7744 Website: www.rdspos.com

CAL I FO RNIA GRO CER | 17

congratulates

Joe Falvey

Jim Van Gorkom

of UNFI/SUPERVALU

of NuCal Foods, Inc.

on their induction into the CGA Educational Foundation Hall of Achievement.

Mark Arrington Post Consumer Brands

Reyes Coca-Cola

Jake Fermanian

Lee Smith

Mark Foley

Rick Stewart

Super King Markets

Smart & Final Stores

CGA NEWS

THE FRONT PAGE FOR CALIFORNIA’S GROCERY INDUSTRY The redesigned cagrocers.com seeks to offer visitors an overview of the state’s grocery community. On the homepage, visuals, facts and figures tell the story of how the industry shape’s California and the people we serve and employ. From event registration to government relations updates, the new website also possesses the functionality you’ve come to expect, and even a little bit more. Our hand-curated News section on the homepage is a great way to quickly scan for the most important and current information impact your business. And for operators, we’ve developed a Local Ordinance Database that can be used to surf through big-ticket local ordinances by location and topic. We hope you’ll find lots of utility in this redesign, and if you have any feedback, please feel free to reach out to CGA’s Director of Digital Communications, Nate Rose.

We’ve Moved! Please update your records to reflect our new address: California Grocers Association CGA Educational Foundation 1005 12th Street, Suite 200 Sacramento, CA 95814 Tel: (916) 448-3545 Fax: (916) 448-2793 Website: cagrocers.com

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CELEBRATING YEAR S

Grocery Operations: We Smooth ‘em Out • Availability of cart assets to • perform for customers

• On-site, quick return-to-action • • convenience

• Manufacturer reimbursement for • faster cash flow

• Detailed reporting from an • accountable partner

• Cart Locking System Parts • and services

• Real-time online reporting

• Cart Transfers

• Reduce cart cleaning and • maintenance costs

• Easy sorting, tracking and • calculating with our innovation • • coupon system

“To ethically provide excellence through innovative retail solutions for our customers by increasing their return on investment.”

1020 N. Lake Street Burbank, CA. 91502 818.817.6712 www.retailsolutionsus.com 20 | CAL I FOR N I A G R OC E R

The SEC membership has given me additional time to get to know the members and to hear about their specific store operations. With this knowledge, we are in a much better position to provide effective and relevant technology solutions. HEATHER DOUGHERTY BUSINESS DEVELOPMENT MANAGER EMERSON GRIND2ENERGY – SEC MEMBER SINCE 2015

Want to learn more about the benefits to CGA’s Supplier Executive Council (SEC) membership? Contact Sunny Porter to learn more and start the conversation with your Sponsored by fellow industry peers at sporter@cagrocers.com or call (916) 448-3545.

cagrocers.com CAL I FO RNIA GRO CER | 21

INSIDE THE BELTWAY

P r o t e c t i n g R e ta i l e r s ’ C o n f i d e n t i a l B u s i n e s s D ata J EN N I F ER H ATC H ER S E N IOR V ICE PR E S IDE N T, GOVERNMENT AN D PUBLIC AFFAIR S FOOD MARKETING INSTITUTE

This spring the U.S. Supreme Court will hear oral arguments that could have far-reaching implications for the grocery industry. The Food Marketing Institute’s case to protect confidential business data was one of only a couple dozen cases the U.S. Supreme Court chose to hear in oral arguments this spring out of the more than 75,000 it receives each year.

those without brick-and-mortar retail stores, access to competitive business insights without having to disclose those of their own. On January 11, the U.S. Supreme Court agreed to hear our case, and oral arguments are now scheduled for April 22.

While we brought the case to protect retailer data for the Supplemental Nutrition Assistance Program (SNAP), the decision will have far-reaching implications which has brought widespread support through amicus briefs of diverse interests.

Our argument demonstrates that Exemption 4 of the Freedom of Information Act (FOIA) protects disclosure of all “confidential” private-sector “commercial or financial information” within the government’s possession, which includes store-level SNAP sales data. We believe that the Circuits, however, adopted a definition of “confidential” that departs from the term’s ordinary meaning.

The How and Why FMI Got Involved FMI intervened in this case in January 2017 after the U.S. Department of Agriculture (USDA) opted against appealing a court ruling from the U.S. District Court for the District of South Dakota that would have ordered the release of store-level SNAP sales figures from retailers. The case was originally initiated when the Gannett-owned Argus Leader newspaper submitted a Freedom of Information Act (FOIA) request with the USDA in 2011. Many FMI members were deeply concerned because releasing this once proprietary information would set an unfortunate precedent giving competitors, particularly 22 | CAL I FOR N I A G R OC E R

The Supreme Court has repeatedly reviewed FOIA exemption cases, recognizing the national importance of properly enforcing both of Congress’s directives in FOIA: to release information for public transparency and to protect some information from widespread public disclosure. While FMI is fully committed to transparency in the broadest sense, the issue in this case is straightforward – it is about protecting confidential business information that retailers keep private.

Multiple organizations have filed amicus briefs in support of our case including the U.S. Chamber of Commerce, Retail Litigation Center, National Association of Convenience Stores, National Grocers Association, National Retail Federation, the Alliance of Marine Mammal Parks & Aquariums, Animal Agriculture Alliance, Fur Information Council of America, Institute for Marine Mammal Studies, National Association for Biomedical Research, Protect the Harvest, the United States Association of Reptile Keepers and the Zoological Association of America – demonstrating how this case extends well beyond SNAP sales data in grocery – it’s about how to interpret the definition of what constitutes confidential business information. Most SNAP Data Are Already Public While the opposition has argued that revealing this data is necessary for greater transparency, FMI has consistently noted that there is already a host of SNAP information that is publicly available to taxpayers on the USDA website: 1) The amount of SNAP dollars redeemed is public – by month and by state and county. Interested parties can compare one year to the next or one year to five years. Continued on page 25 ▶

WASHINGTON REPORT

F i x i n g t h e r e ta i l g l i t c h

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

Sometimes the best intentions have unforeseen consequences. Fortunately, this time there’s an easy fix. The Tax Cuts and Jobs Act (TCJA), passed in 2017, provided the business community with long-awaited tax relief and included many positive provisions for independent supermarket operators. The National Grocers Association fought tirelessly to ensure the independent supermarket industry would experience the full benefits of tax reform just as much as other businesses. While we were grateful for lawmakers’ efforts to simplify the tax code and alleviate tax burdens on Main Street grocers, a provision in the bill that was intended by Congress to help retailers invest in their businesses could harm them if not fixed. The law included a provision known as “100% bonus depreciation” that allows businesses to immediately write off the full

costs of short-lived investments. However, due to a drafting error the language excludes some categories of business investment, most notably qualified improvement property, from being eligible for 100% bonus depreciation. Section 168 of the old tax law had three individual categories of qualified improvement property: leasehold improvement property, retail improvement property, and restaurant improvement property. Each category had a 15-year Modified Accelerated Cost Recovery System (MACRS) recovery period, meaning property could depreciate over the course of 15 years. To simplify the tax code, tax writers combined the three above categories into

“The National Grocers Association fought tirelessly to ensure the independent supermarket industry would experience the full benefits of tax reform just as much as other businesses.” 24 | CAL I FOR N I A G R OC E R

one category called “qualified improvement property” in the new bill and meant to designate it with a 15-year recovery period. The intent to designate this 15-year recovery period was explicitly stated in the conference agreement, but when the final bill was written, the 15-year recovery period was accidentally omitted from the text, and the recovery period defaulted to 39 years. According to a report done by the Tax Foundation, despite effectively removing tax barriers to many categories of business investment, the new tax law “created new barriers for investing in qualified improvement property, seemingly by mistake. Businesses making investments to improve their property now face a more restrictive cost recovery period – more than twice than under prior law – and are excluded from 100 percent bonus depreciation.

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WASHINGTON REPORT

These businesses will face a higher tax burden on QIP investments than under previous law, an outcome that could have significant consequences, potentially slowing investment, employment, and output for those affected.”

At the time of this writing, standalone legislation was introduced in the U.S. Senate by Senators Pat Toomey (R-PA) and Doug Jones (D-AL). NGA anticipates that legislation will be introduced in the U.S. House of Representatives this spring.

average profit margin typically ranges from one to two percent, any opportunity to fully depreciate improvements made to stores will significantly help these entrepreneurs upgrade their stores, and more importantly, expand offerings and hire additional staff.

Lawmakers have acknowledged this error, which has been dubbed the “retail glitch” and are supportive of correcting this issue. Since there is no cost associated with the fix, it is among the few provisions in the new tax law that has been identified by the Joint Committee on Taxation as needing a true “technical correction.”

Along with a coalition of retail, restaurant and business organizations, NGA has been hitting the pavement, meeting with offices on Capitol Hill urging lawmakers to address this issue and fix the retail glitch as soon as possible.

NGA will continue to work towards a legislative fix for this retail glitch in addition to advancing policies that will protect and enable independents to grow and better serve their communities.

Independent supermarket operators are driving innovation in the marketplace, but in a fiercely competitive industry in which the

For more information on the Retail Glitch and ways to contact your Congressman, visit www.nationalgrocers.org/fixtheglitch.■

◀ “Protecting Retailers’ Confidential Business Data”, Inside the Beltway column, continued from page 22

“While FMI is fully committed to transparency in the broadest sense, the issue in this case is straightforward – it is about protecting confidential business information that retailers keep private.” iStock

Our industry already tracks this public information for business and customer trends, and 2) The USDA’s website also depicts where stores with licenses and redemptions by category are available in addition to where SNAP-authorized stores are located. Store-level sales data, we maintain, is confidential, similar to how much business grocers do in cash, credit, debit, checks or even gift cards.

Implications and Next Steps In its decision to hear our appeal, the U.S. Supreme Court agrees that this case requires further discussion and that the application of Exemption 4 could also extend to storelevel SNAP sales data. The case will also have broader implications for parties who submit sensitive information to the federal government and whether such information is subject to public disclosure under a FOIA request. Oral arguments are scheduled for April 22 with a decision expected later this summer.

We will continue to offer updates and analysis of the implications of this case. For more information regarding this case, visit the FMI website, www.fmi.org. ■

CAL I FO RNIA GRO CER | 25

OUTSIDE THE BOX N EW RETAIL PERS PECTIV ES

Home Away from Home

Differentiation’s not only an issue with retailers, but also among hotels that are increasingly competing with homespun providers like Airbnb. In order to break out of the cookie-cutter room strategy, Marriott International is expanding its home sharing pilot program in London. Marriott says it can provide amenities that Airbnb can’t like fully vetted properties, fluffy towels loyalty programs that let members use points to book homes.

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HELPING HAND

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Sainsbury has found a new way to enhance shopping for customers with certain disabilities such as autism, dementia, or visual or hearing impairment. Customers can pick up and wear a lanyard to help store personnel recognize that they may need some extra help finding items, or more time at the checkout. Customers can keep the lanyard and wear it each time they visit their store.

MORE WHISKEY

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If you’re trying to decide if a market or category is overstored take a page from Brown-Forman’s playbook. The whiskey producer abandoned old technology and spent three years taking inventory and integrating consumer data. The result was that consumers could handle their liquors like rye and bourbon and it wasn’t time for last call. The company is also dabbling in artificial intelligence. But will this answer the question, can robots get drunk?

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New

EXPERIENCES H&M, the fast fashion retailer that set the apparel business on its ear isn’t satisfied to rest on its laurels. The company is experimenting with a number of new concepts and ways to improve the customer experience including cafes, an in-store florist, monogramming and repair services, digital in-store shopping and stocking external brands rather than just its own label.

MARKDOWN

MADNESS iStock

It may not be past its sell date but inventory is a universal problem. A survey by Coresight Research and Celect found that markdowns cost U.S. retailers $300 billion in revenue last year. And much of that was caused by inventory misjudgments. Additionally, 86 percent of respondents cited ways in which advanced analytics could help them sell more product at full price.

SMART SNEAKERS First there were smart phones, the smart home. Now it’s the smart auto-lacing sneaker from Nike. For those with shoe money to spare, the company is introducing a $350 app-controlled item that tightens to your foot, optimizing comfort and eliminating the need to tie those pesky laces.

ALL-IN RECYCLING Marks and Spencer is going all out – or all in – to recycle plastic packaging. The U.K. retailer is putting recycling bins in all stores where customers can drop off black plastic trays, sauce and certain cosmetic containers – none of which are now being recycled by local communities. The collected items will be used to make furniture and playground equipment for schools. The company will also be introducing recycling collection points at local primary schools.

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BODY HACKING If you’re looking for a new way to track customers, try body hacking. A handful of companies, including Digiwell in Hamburg, Germany, are using needles to insert digital technology in the form of a microchip the size of a grain of rice into people. Similar technology has been used for cats, dogs and livestock. How widespread this will be is anybody’s guess since “biohacking” raises issues about privacy and data security. iStock

SPACE RACE

Forget stores and malls. The latest trend in the space race among developers is for larger and more sophisticated warehouses, some as tall as four stories. These facilities are also being built closer to urban areas so packages can be sorted and more quickly delivered. CAL I FO RNIA GRO CER | 27

Balancing

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food safety

& the environment By Len Lewis and Tim James Everything in a grocery store includes packaging of some type. If it’s not packaged by the manufacturer, it’s packaged in-store by the grocer. Even loose products like produce and bulk foods are packaged, usually by the consumer, in some manner. Packaging is normal, necessary and simple. But with rapidly changing considerations by consumers and their political leaders that include climate change, waste reduction, recyclability and sustainability is food packaging still a simple thing? Or, has it always been complicated? In 1988, the City of Berkeley started the regulation of food packaging and banned chlorofluorocarbons as an ingredient – a key component of foam at the time. While not much came from the effort, with the plastics manufacturers voluntarily removing these chemicals from packaging before the ordinance’s implementation, it set a precedent that many more cities would follow. More than 30 years later, California is now home to more than 120 local ordinances regulating food packaging in one manner or another, with some ordinances being more onerous than others. Well-crafted food packaging regulation strikes a balance between the environmental gain and the necessity for safe and quality food items. However, some local jurisdictions have placed more emphasis on the environmental side of the equation. The unfortunate result is grocers facing decisions to either make wasteful decisions, or discontinue product sales to comply.

Examples of unbalanced local food packaging regulation include the City of Santa Monica, whose city council passed an ordinance calling for only using “marine degradable” food packaging for all food items. The problem with the ordinance is that “marine degradable” food packaging per their definition does not exist. While it had initially received an ASTM standard, it was abandoned four years ago and no manufacturer is offering the product. Beginning this summer there will not be a food retailer in Santa Monica that will have compliant food packaging. How could this regulation get so far out of balance? Santa Monica elected officials stated they were so concerned about food packaging becoming litter and marine debris that they regulated to an unrealistic standard requiring all food packaging to fully degrade after 120 days in the ocean. Despite input from the grocery industry that this would result in most food items prepared in-store from being unavailable for sale, they chose to assume all food packaging could or would end up in the ocean.

Continued on page 30 ▶

CAL I FO RNIA GRO CER | 29

◀ Continued from page 29

Just up the road from Santa Monica, the City of Malibu passed food packaging regulations requiring all raw meat products be packaged in recyclable or compostable packaging whether it was packaged in-store or packaged outside the city and delivered to the store. Even with a delayed implementation, grocers are unable to be fully compliant. In attempting to comply, grocers have either had to repackage meat products delivered to the store into compostable packaging – doubling the waste – or simply discontinue the sale of some products.

“There’s no doubt retailers are seeing growing policy reaction at the local level on what packaging should be allowed in their community,” said Mark Murray, Executive Director of Californians Against Waste, one of the largest environmental advocacy organizations in the country, and a close ally of CGA in the battle for common sense regulations. “Joining with the retail sector, we believe that it’s time for a uniform statewide policy.” Jeff Hall, Division Meat and Seafood Merchandiser for Ralphs Grocery Co., agrees.

Issues Management and Public Affairs for General Mills. In addition to the company’s own initiatives, he works closely with the American Institute for Packaging and the Environment (AMERIPEN) to focus on policy at the state and local levels. The company also is a member of the Sustainable Packaging Coalition. “AMERIPEN is material neutral so we’re not focused on one type of packaging,” Anderson said. “We found it a more effective way to present a broader voice on public policy issues. We are engaged in some discussions at the national level and the EPA has put out some very general guidelines. But the reality is that packaging policy is, for the most part, made at the state and local level.” Time may be of the essence, according to Murray.

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“There’s no doubt retailers are seeing growing policy reaction at the local level on what packaging should be allowed in their community retailers.” It is important to note that Malibu doesn’t provide for compostable product disposal for its citizens. Again, it was a city council’s focus on potential environmental impacts and not the safety and quality of food which was overly weighted.

“We’re working with the State Legislature to get more involved and to institute some type of blanket policy rather than have each municipality initiate their own regulations,” Hall said, pointing to areas like Malibu, San Diego and Manhattan Beach.

Other jurisdictions have taken note of the environmentally-friendly ordinances passed by Santa Monica and Malibu and are looking to enact similar policies. Unfortunately, in doing so they are putting food safety and supply at risk, despite hearing directly from grocers and the California Grocers Association that grocery food packaging is different from restaurant-style food packaging often found as litter and debris in their communities.

“This would take some of the burden off grocers and get manufacturers to think differently about some of the products they offer in the stores,” he added, noting that headway is being made on some commonsense regulations with CGA leading the charge.

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

Manufacturers are well aware of the issues and are working on several fronts, noted Lee Anderson, Director of Global

“The issue of packaging has reached a critical point because citizens and regulators believed we were recycling more grocery packaging than we were,” Murray said. “We’ve been recycling soft drink bottles, glass and metal containers but, for the last decade, sending mixed paper and plastics overseas to places like China, Indonesia, Malaysia and the Philippines where brokers sorted through the mix for PET bottles, aluminum cans and clean paper.” Murray noted that in 2017, California exported 13,000 tons of recyclable materials overseas, with more than half exported to China. The problem, according to Murray and other industry observers, is that China is now telling its private brokers they can no longer accept mixed paper and plastic, only clean and clear paper and plastic. This means the mixed stream, previously a source of revenue, has become a disposal cost and more is being landfilled. This is leading to a lot of proposals on singleuse plastics. “A ban on single-use plastics will have broad implications for retailers which are also foodservice providers and who are caught up in a torrent of local regulations. It’s not clear yet what direction these proposals may take – whether they will be grandfathered in, or pre-empted by state regulations.

All that has yet to be determined,” Anderson noted, adding that it’s a good bet all this will increase retailer costs. “Regulators in California are trying to decide what to next,” Murray said. “Supermarkets are caught in the middle of all these discussions. More local governments are attempting to restrict food-to-go packaging.” He added that about 100 different cities have passed some ordinances restricting takeout packaging, primarily polystyrene. Municipalities like Malibu, Santa Monica, San Francisco and Oakland have adopted even more comprehensive strategies. Grocers have already stepped up to the plate, replacing polystyrene with polyethylene terephthalate (PET) for bakery item packaging, and there is potential to replace dairy item packaging like margarine tubs and yogurt. These and other initiatives are particularly urgent for private label products since retailers are considered to be the brand owners. “There’s no doubt the grocery industry is willing to do its part by internalizing some of the cost. But there needs to be a uniform statewide structure,” Murray said. “I have a lot of confidence in the team at CGA to work this out,” he added. “They are as skilled and influential as anyone in Sacramento and they need the goahead from its membership to support a comprehensive policy.

Meanwhile, Ralphs came up with a compostable tray for Malibu from several suppliers. However, there’s also the issue of styrofoam cups and coolers to be replaced. “Those replacements are hard to find,” Hall said. “If it was mandated tomorrow that we had to switch away from polystyrene, finding good replacements would be extremely difficult.” According to Hall, the company removed about 100 SKUs from the Malibu store to comply with regulations.

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“A ban on single-use plastics will have broad implications for retailers which are also foodservice providers and who are caught up in a torrent of local regulations.” “This has limited customer choices and they are going outside the city to buy these items and bringing them back,” Hall said. “So, the city still has to deal with the trash issue.” The bottom line has been a double-digit decline in revenue in the meat department which can be traced directly to the packaging issue, said Hall.

“This is where we were with plastic bags eight years ago. We can spin our wheels and have hundreds more local, piecemeal ordinances for the next four years, or come together for a statewide solution.”

“A company like Foster Farms supplies chicken nationally and does it in such a way that’s most cost-effective for them,” he said. “They’re not going to change what they do for one grocery store in Malibu. That’s what we’re facing today.”

Retailers are dealing with this regulatory conundrum as efficiently as possible.

However, Ralphs has worked with Foster Farms for some of its private label items.

“In Malibu, we were instructed to remove all polystyrene from the building. It didn’t just affect meat, but also grocery and general merchandise,” noted Hall. However, according to Hall, there were issues with implementation and the city is reassessing the situation.

“They have a couple of SKUs that are plastic rather than Styrofoam,” he said. “Basically, we have to truck those items from Northern California to our distribution facility in Los Angeles and reship them to the Malibu store,” Hall said. “This takes days of life off the products not to mention the gasoline and carbon footprint we’re putting down.” In some instances, grocers removed products from banned packaging in the store into an alternative package.

“We won’t do that for safety reasons,” said Hall. “Once you remove a product from packaging that has a federally inspected seal on it, you can’t trace it back, Basically, you’re doubling the amount of trash and creating a potential food safety issue. “We are working with the state to institute some kind of blanket policy that would take the burden off grocers and get manufacturers to think differently about some of the products they offer in the stores,” he said, noting that Ralphs’ parent company Kroger is taking the lead in speaking with the vendor community. Meanwhile, the company is deeply involved in its Zero Hunger Zero Waste Initiative, with a goal to eliminate both by 2025 in the communities its stores serve. In the interim, the company, as part of its sustainability goal, aims to divert 90 percent or more of waste in its operations from landfills by 2020. At Ralphs it’s about recycling wherever possible, according to Hall. This means no cardboard in the dumpsters, recycling plastic wrap and asking customers to bring plastic bags back to the stores. Continued on page 32 ▶ CAL I FO RNIA GRO CER | 31

◀ Continued from page 31

General Mills also has an ambitious program to have 100 percent of its packaging recyclable by 2030. Just one example is the Cascadian Organic brand cereal which uses a liner produced with biomaterial and is fully recyclable, Anderson noted. This is only one initiative in the company’s target goals. This includes: Reducing greenhouse gas emissions within its packaging supply chain or 7 percent of its total value chain emissions and a commitment to sustainably source 100 percent of its fiber packaging by 2020. This will achieve zero waste to landfill at 30 percent of General Mills production facilities by 2020 and 100 percent by 2025. These and other initiatives are creating opportunities for the grocery industry to address legislators. “The reality is that retailers, brand manufacturers and packagers have been responding to the waste issue,” Anderson said. “Everyone is tweaking it differently but the major companies are investing a lot of resources in helping packaging manufacturers develop recyclable alternatives and new packaging formats.” However, Anderson and others emphasized that consumer attitudes and input are an important part of the equation. “People care. We’ve heard more from consumers about plastics in particular – specifically ocean plastics,” said Anderson. “They are reaching out, asking questions and wanting more information about packaging. They buy our brands but they’re buying them from CGA members. We want to make sure we’re sharing information with people, addressing the issues and providing options.” As a recent report from research firm GlobalData reported: “With increasing public awareness of the harm plastic has on the environment, consumers are increasingly seeking a relationship with retailers and manufacturers that extends beyond a mere transaction. With increasing government

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

legislation, consumers across all generations, particularly the young, are adapting their purchasing behavior in line with the ethics and values of retailers and manufacturers.”

Unfortunately, the recent lack of recognition by some environmental advocates and local government decision-makers has raised the alarm for the grocery industry.

“The goal is to reduce confusion on the part of the public, improve the reliability and transparency of recyclability claims, provide a labeling system that follows FTC Green Guides and increase the availability and quality of recycled material.” One way the company engages people is through collaborative partnerships with organizations like the Sustainable Packaging Coalition which has developed a program called How2Recycle. This program consists of a standardized labeling system that offers clear instructions to consumers on recycling metal, paper and plastics. The goal is to reduce confusion on the part of the public, improve the reliability and transparency of recyclability claims, provide a labeling system that follows FTC Green Guides and increase the availability and quality of recycled material. General Mills is adding it to an increasing number of packages, Anderson said. In spite of industry efforts and burgeoning efforts by state legislators to reduce plastic packaging, local jurisdictions will no doubt continue crafting ordinances of varying quality. Most California food packaging ordinances focus on eliminating packaging types being used for convenience purposes, generally meaning food packaging used by restaurants for take-out items. They recognized the intricacies and challenges of grocery food packaging, with exemptions included for food items common in the grocery store setting and nowhere else, like raw meats and baked goods.

Where folks get lost is not realizing their six-pack of blueberry muffins baked in-store requires food packaging that can handle several days on the store shelf, consumers shuffling packages to pick their favorite, transportation in the store and to their home, and, finally, sitting on the kitchen counter for up to six days as a muffin is consumed each morning. “Grocers need to package these six muffins to remain safe and retain their quality for up to 10 days,” said CGA’s Aaron Moreno, Senior Director, Government Relations. “This is far from a simple accomplishment, but very few think about these challenges. “As legislators set out to craft a statewide policy on single-use plastic and food packaging, there is much hope by the grocery industry – both retailers and manufacturers – that the special needs of the industry are recognized and addressed,” he added. Much like it was when the Legislature set out to create a uniform state policy on single-use plastic bags, CGA stands ready to provide its expertise in service of a policy that truly balances food safety and shelf life with environmental sustainability. ■

CAL I FO RNIA GRO CER | 33

Purina trademarks are owned by Société des Produits Nestlé S.A. Printed in USA.

OR, HOW A STAPLER CAN ROB YOU BLIND

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

BY GERRY GARCIA, CPA, CFE, CISA In a real-world example of how a grocer can be robbed before purchased inventory ever leaves its supplier, a grocery company buyer makes off with $350,000 using just a stapler. He simply attaches a fraudulent addendum to an otherwise valid purchase contract, directing a small portion of each payment to be made to a bogus account. It isn’t found until a profitability question, raised years later, during a routine review of the business unit’s financial results. What’s your battle plan against the forces of grocery fraud? Do you have adequate intel and situational awareness to win the war? Have you donned the strongest armor and ignited the most successful combat tactics? You’ve deployed more than your share of resources combating inventory shrink, and that’s a good start toward reducing fraud’s impact on the bottom line. But if you haven’t dedicated just as much effort to preventing and detecting purchasing fraud, you might be blind to half the enemy.

IMPROVING YOUR INTEL AND SITUATIONAL AWARENESS

(See Figure 1 on page 36) According to the Association of Certified Fraud Examiners’ (ACFE) latest biennial global report1, inventory and other non-cash transactions comprise only about a third of all retail fraud. The second highest retail contributor, responsible for another 28 percent, is corruption. That category includes such high-impact activities as bid rigging and buyer kickbacks (as in the Great Stapler Heist mentioned above). And it’s even worse for wholesale. The ACFE report says the most common transportation/warehousing fraud scheme is corruption which drives nearly half (46 percent) of its losses, the fraud type with the highest frequency across the grocery supply chain. Continued on page 36 ▶

Association of Certified Fraud Examiners’ 2018 Report to the Nations – www.acfe.com/report-to-the-nations/2018/

CAL I FO RNIA GRO CER | 35

“Purchasing frauds are more likely to be corruption than those of any other organizational department. In fact, no other department is more likely to commit any type of fraud, by far.”

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◀ Continued from page 35

Another metric in the ACFE’s report shows how long it takes to detect and stop different types of frauds. While inventory shrink has a median duration of 18 months, bid rigging and buyer kickbacks take 22 months to extinguish. And since corruption losses are much larger than that of inventory shrink, those additional four months are very expensive indeed. To help complete your improved understanding of the threat horizon, the ACFE report also provides actual data on which organizational unit primarily commits corruption frauds. If you think it’s the executive suite, you’re almost right. They come in second to your purchasing department by a full 15 percentage points.

STRENGTHENING YOUR ARMOR AND COMBAT TACTICS

The ACFE report delivers a real-world set of answers to that question for you. The result of combing through thousands of files describing actual frauds over the past two years, the ACFE report identifies the internal controls linked to the biggest reductions in dollar losses. Similarly, the report also calls out the controls present at organizations with the shortest-duration frauds. Combining those two lists, the result highlights the internal controls most likely to help you strengthen your armor and improve your combat tactics.

That means purchasing frauds are more likely to be corruption than those of any other organizational department. In fact, no other department is more likely to commit any type of fraud, by far.

PROACTIVE DATA MONITORING AND ANALYSIS –

Now that you have a better handle on how both inventory shrink and purchasing activities rob from you and your success, what can you do about it?

Topping that combined list is the most powerful anti-fraud control on the planet: proactive data monitoring and analysis. It is linked to an over 50 percent reduction in dollar losses and

Your No. #1 Weapon

Billing

Cash Iarceny

Cash On Hand

Check and Payment Tampering

Corruption

Expense Reimbursements

Financial Statement Fraud

Non-Cash

Payroll

Skimming

Figure 1

Banking and Financial Services

11%

14%

23%

12%

36%

11%

Manufacturing

27%

15%

12%

51%

18%

10%

28%

Government and Public Admininsration

15%

11%

50%

11%

22%

11%

Health Care

26%

13%

36%

16%

11%

19%

17%

12%

Retail

20%

10%

19%

28%

12%

34%

13%

Education

23%

19%

38%

18%

19%

14%

Insurance

20%

18%

45%

11%

Energy

20%

10%

12%

53%

10%

27%

10%

Construction

37%

12%

19%

42%

23%

16%

23%

14%

13%

Transportation and Warehousing

25%

46%

15%

28%

13%

MOST COMMON FRAUD SCHEMES BY INDUSTRY

INDUSTRY

RETAIL Corruption

Non-Cash

28%

34%

TRANSPORTATION & WAREHOUSEING Corruption

Non-Cash

46%

28%

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Cases

Billing

Cash Iarceny

Cash On Hand

Check and Payment Tampering

Corruption

Expense Reimbursements

Financial Statement Fraud

Non-Cash

Payroll

Skimming

Figure 2

Accounting

290

29%

14%

17%

30%

23%

12%

13%

14%

19%

Operations

266

15%

36%

11%

20%

11%

Executive/Upper Management

223

35%

14%

16%

15%

62%

29%

30%

20%

12%

Sales

216

10%

12%

34%

13%

25%

14%

Customer Service

155

16%

31%

19%

15%

14%

Administrative Support

147

33%

21%

14%

26%

22%

19%

13%

14%

Finance

110

17%

15%

21%

16%

37%

13%

16%

15%

10%

Purchasing

18%

77%

10%

31%

FRAUD SCHEMES BY DEPARTMENT

INDUSTRY

CORRUPTION Executive/ Upper Management

62%

Purchasing

77%

an almost 60 percent reduction in fraud duration. As such, it is your strongest armor in the battle against fraud and the most valuable combat tactic you can develop. One of the best ways to think about data monitoring: simply listening to what your systems are telling you. In most organizations, an Enterprise Resource Planning system (ERP), such as SAP and Oracle to name just two, is installed to help control the flow of valuecreating activities. From the first upstream decision to the last entry made to report financial results, your ERP naturally collects data from almost every aspect of your business. The opportunity it presents is the real-time collection of trended facts that can be compiled and analyzed to both prevent and detect the most important types of grocery fraud. Even if you have multiple ERPs running simultaneously, usually due to incomplete acquisition integration, you can use a data analytics tool to provide the same powerful facts as if you had already finished integrating your systems. ACL and Alteryx are just two of the many software options. The supply in the market for these tools is saturated. So, if you have multiple ERPs, you can try some of them to find the one with the cost and functionality that most closely fits your needs. In any case, once you bring one on board, you’re now ready to reap the rewards of this powerful weapon. Just as a few examples, using data monitoring and analysis, you can compare profitability across similar products, generate cost trend lines for one product line over time and analyze prices for similar products from different suppliers and trended prices for one vendor over time.

Of course, the results won’t be the “smoking gun,” but they will point in the right direction and help determine whether more questions need to be asked. This is what your systems are telling you. Without data monitoring and analysis, it is difficult and maybe even impossible to hear. SURPRISE AUDITS – A Close Second

Exploiting your Loss Prevention (LP) and/or Internal Audit (IA) group, consider surprise audits. According to the ACFE’s report, it’s the only other control – besides data monitoring and analysis – linked to an over 50 percent reduction in both fraud duration and dollar-loss. LP and IA teams usually develop well-established and detailed audit plans as each year begins. In many organizations, those plans are communicated to the rest of the business and rightly so. However, if not already in place, consider earmarking even just a small portion of your LP/IA resources for surprise audits. These would be audits addressing key risks, as do the rest of your resources. The only difference: specific product line teams or business units won’t be given advance notice. The unique benefit of surprise audits goes well beyond the audits themselves. As important as the gathering of real-time onsite documentation can be, it’s actually overshadowed by its own deterrent factor. Once surprise audits become a naturally recurring part of the LP/ IA audit plan, the intel will quickly spread across your organization. You’ll never know exactly how powerful it is, but it’s clear the result drives untold compliance. Continued on page 38 ▶

CAL I FO RNIA GRO CER | 37

iStock ◀ Continued from page 37 NEXT BEST – Controls Linked to a 50% Reduction in Fraud Duration and Cost

The ACFE report shows that three internal controls are associated with approximately 50 percent reductions in both fraud duration and dollar loss. They are an external audit of internal controls, management review and a hotline. The need and ability to implement one or more of these depends on your organization. Organizations that engage an audit firm to review its internal controls are usually publicly-traded, subject to regulation by the SEC and required to comply with the Sarbanes-Oxley Act of 2002. These organizations need to obtain a registered audit firm’s formal opinion on the effectiveness of their internal controls. Though others may elect to do so, it is a particularly expensive option. All organizations can and should deploy a comprehensive, detailed and recurring management review of financial results across the enterprise. The potential to use that approach to help detect and prevent fraud depends on how it is implemented. There should always be a comparison of product line profitability both over time and across similar product lines. This comparison needs to be detailed enough to be sensitive to even a single digit variation in profitability. That granularity is necessary as perpetrators usually attempt to hide their activities. The reviews should be frequent enough (at least monthly) to surface any variations in a timely fashion. Similar to surprise audits, a regularly recurring detailed management review process also provides a deterrent effect by its very nature. Many of the same benefits of surprise audits and management review come with implementation of a hotline. Again, those benefits depend entirely on how it is setup and administered. Is it available only to employees or can suppliers, customers and others provide reports? Is it only available to whistle-blowers via phone or is there an online portal? What part of your organization checks to see that all hotline reports are investigated? How often are whistle-blowers kept

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

current on the investigation’s status? Is there a set of guidelines that determine what part of your organization (and which external law enforcement agency, if applicable) is informed of a report and when that communication happens, depending on the type and severity of the allegation? Are there guidelines that help the organization standardize perpetrator consequences by severity and impact, as identified at the conclusion of the investigation? All these questions and more need to be answered consistent with your organization’s culture and always with the goal of encouraging whistle-blower engagement. The ACFE report shows just how important an effective hotline is. While over a third of other frauds are detected through a hotline tip, finding out about fully half of corruption relies on whistle-blowers. So, to even have a fighting chance of finding out about bid rigging and buyer kickbacks in the organization, employees, suppliers and customers who report a tip need to know each and every hotline report is taken seriously. The cost of a lack of timely and transparent communication with whistle-blowers cannot be underestimated.

Figure 3

CORRUPTION IS PARTICULARLY LIKELY TO BE DETECTED BY TIP Corruption

Asset Misappropriation

Financial Statement Fraud

50%

38%

DETECTED BY TIP

BEST OF THE REST –

• Vendor bank account/routing info is notarized and original

Controls Linked to a 50% Reduction in Fraud Duration

• Vendor ACH-EDI info change requires verbal confirmation

While the following internal controls vary in their association with reduced fraud dollar losses, the ACFE says they’re present when fraud duration is halved.

• Change to vendor setup is reviewed at manager/director level

• Implementation of an anti-fraud policy across the organization

• Bid documents/results are reviewed and approved at VP level

• Deployment of a full-scope, independent Internal Audit team

• Random quarterly purchasing compliance audits performed

• Formal certification by multiple levels of management that internal controls are effective • Required anti-fraud training for employees FOCUS ON PURCHASING FR AUD

Depending on your organization’s approach to purchasing, consider implementing and/or strengthening a combination of the following anti-fraud controls tailored to the procurement process. • Review and disposition of duplicate invoices from vendors • Three-way match confirmation prior to paying invoices • Positive Pay implemented for all checking accounts • Vendor authentication is reviewed at manager/director level

• Vendor file maintenance access is segregated from all others

Is your fraud-fighting battle plan better now that you’re armed with the real-world results reported by the ACFE? Do you have the information you need to take concrete steps toward implementing improved anti-fraud combat tactics? With your improved intel and situational awareness, you can use these well-established approaches to develop other internal controls even more closely aligned with your organization’s culture and goals. Remember that industrious buyer who found a very crafty use for his company-furnished stapler? By the time questions began to surface, he inevitably heard about it and abruptly resigned leaving a fraudulent forwarding address. You can be sure that, though staplers are still issued to employees, a control is now implemented that ensures the company’s and its supplier’s final contract versions are consistent. ■

Congratulations

Joe Falvey and Jim Van Gorkom on your Induction into the CGA Educational Foundation Hall of Achievement.

From your friends at

CAL I FO RNIA GRO CER | 39

ALBERTSONS

Serving Up the Freshest Eggs for Generations. NuCal Foods Family Farms Producing Californiaâ&#x20AC;&#x2122;s Freshest Eggs. Our local California Family Farms have been providing farm fresh eggs daily to your stores. In addition to producing fresh, nutritious, high-quality eggs, we take pride in the traditions and values of being good stewards of the land, providing superior care for our hens and giving back to the communities that support us.

Clay McFarland, Grocery Outlet Senior Director Sales and Merchandising for Southern California.

FO U N DAT I O N H O N O R S

Industry Icons

Photography by Tia Gemmel

CGAEF Executive Director Shiloh Costello and CGAEF President Ron Fong (far right) interviewed the inductees. 42 | CAL I FOR N I A G R OC E R

Jonathan Mayes, Albertsons, sang the national anthem.

Jim Van Gorkom’s grandchildren, James, Ansley, Katie, Chloe and Ethan led the Pledge of Allegiance.

Two grocery industry executives with deep leadership roots in both the California Grocers Association and the CGA Educational Foundation were inducted into the Foundation’s prestigious Hall of Achievement on March 28, 2019 in San Ramon, Calif. Hundreds of industry peers, friends and family attended the gala event to honor Joe Falvey, President, Professional Services, UNFI/SUPERVALU, and Jim Van Gorkom, Senior Vice President, NuCal Foods, Inc.

“We are honored to induct two very worthy Hall of Achievement recipients,” said CGA/CGAEF President Ron Fong. “Their contributions to our industry and their communities is well-documented.”

The Hall of Achievement recognizes grocery leaders for their tremendous contributions to not only the industry, but their local communities as well. Proceeds from the event help fund the Foundation’s college scholarship and tuition reimbursement programs.

Both award recipients have long histories of involvement with the Educational Foundation, the Association and other allied organizations. Falvey served on the CGA Board of Directors and as CGA Chair in 2015. He also served on the Foundation’s Board of Trustees.

“These two individuals have always had the best interest of the Foundation in mind and their legacy will always be one held in the highest regard by their peers and colleagues.”

Van Gorkom currently serves on the CGA Board and from 2011–2016 served as Chair of the Foundation’s Board of Trustees. In addition, he also served as Illuminator Headlite (chair), a vendor-based organization that supports the Association’s annual Strategic Conference. “Jim was a tremendous Board chair,” said Shiloh London Costello, Foundation Executive Director. “Both inductees played pivotal roles in assisting the Foundation through an important transitional period.” Succeeding Van Gorkom as Foundation Chair was Brad Askeland, North State Grocery, Inc., who in his presentation applauded the inductees’ commitment to the grocery industry. Continued on page 44 ▶

◀ Continued from page 43

Donations from the Silent Auction help fund the Foundation’s many programs.

(L to R) Jim French; John Doyel; Ron Fong, CGA; Kendra Doyel, Ralphs Grocery Co.

“The industry’s support of the Foundation’s annual Hall of Achievement is nothing short of incredible.”

Foundation trustees Jacquie Slobom, Gelson’s Markets, and Chair Brad Askeland, North State Grocery, Inc., introduced Jim Van Gorkom.

“These two individuals have always had the best interest of the Foundation in mind and their legacy will always be one held in the highest regard by their peers and colleagues,” he said. Askeland was later joined by Board Trustee Jacquie Slobom, Gelson’s Markets, and both introduced the night’s first inductee, Jim Van Gorkom. Joe Falvey was then introduced by his daughters, Shauna and Brooke Falvey. Following the awards presentation, both recipients participated in the Gala’s traditional Honorees Interview, hosted by the Foundation’s Shiloh London Costello and Ron Fong. In addition to the induction ceremony, attendees listened to an emotional presentation from Clay McFarland, Grocery Outlet Senior Director Sales and Merchandising for Southern California. McFarland recounted his grocery career that began at age 16.

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

As the Foundation’s primary fundraiser, attendees also had the opportunity to participate in a Live Auction and the Foundation’s annual Fund a Need program. “The industry’s support of the Foundation’s annual Attendees had the opportunity to participate in the evening’s Fund A Need program. Hall of Achievement is nothing short of incredible,” Fong said, Realizing the career advantage of a college adding special recognition to the evening’s degree, McFarland steadfastly worked platinum and gold sponsors. “So many towards his bachelor’s degree, while being deserving college students and CGA member employed full time and raising a family. In 2013, after years of night school, McFarland’s employees have been able to realize their education dream through the tremendous dream was realized. But he didn’t stop there. generosity of our members.” “I graduated with my bachelor’s degree and The Hall of Achievement Dinner is still had a yearning for higher education,” he the Foundation’s signature annual told attendees, adding his desire to pursue a fundraising event. Created in 1992, the graduate degree became a reality in 2017. dinner recognizes retailers and suppliers “Desire was essential in this reality, but who have contributed substantially to the most importantly was the support of my advancement of the grocery industry. employer and scholarship funding that I Along with other programs, the event funds have been fortunate to receive from the CGA several Foundation college scholarships. ■ Educational Foundation,” he said. McFarland received two Foundation scholarships and multiple tuition reimbursements and is now less than nine months away from completing his MBA.

About Our Honorees Joe Falvey

President, Professional Services UNFI/SUPERVALU Joe Falvey is the President of Professional Services, a division of UNFI. Born and raised in Fairfield Conn., Joe graduated from Marietta College in Marietta, Ohio with a B.A. degree in Managerial Economics.

Joe and Dolly Falvey

Jim Van Gorkom Senior Vice President NuCal Foods

Jim Van Gorkom began his career in the grocery industry while in college and held sales positions with several national companies, including Nestlé Foods and Sun-Maid Growers, before joining NuCal Foods in 2006. As Senior Vice President, Jim directs all sales and marketing functions for NuCal Foods, Norco Ranch, Rocky Mountain Eggs, Nest Best Egg Company and Nulaid Foods; producing both fresh shell eggs and egg products in a wide variety of brands. Van Gorkom graduated from the University of Phoenix with a bachelor’s degree in business administration He is also a graduate of the USC Food Industry Executive Program. He has served in leadership positions for many grocery industry organizations, including as Chairperson of the CGA Educational Foundation, Dimmed

Falvey began his career with E & J Gallo Winery in Los Angeles and San Francisco. Joe joined Nalley Fine Foods in 1986 as Regional Manager, then later was promoted to Director and relocated to Seattle, Wash. In 1999, Falvey was recruited by Unified Grocers to move back to Northern California as Division

President. In 2004, Falvey was promoted to President of Market Centre. In conjunction with the recent acquisition of SUPERVALU by UNFI, Falvey has now assumed the role of President Professional Services, a division of UNFI. The various charitable and political boards he currently serves or has served on include: Past Chair of California Grocers Association, President Northern California City of Hope, WAFC Board Member, and Distinguished Citizen for Boy Scouts of America. Falvey resides in Danville, Calif. with Dolly, his wife of 32 years. They have two daughters, Brooke and Shauna and two dogs, Maile (Australian Shepard) and Jasper (mixed bag of fun).

Headlite / Past President of The Illuminators, President and Chairperson of the Frozen & Refrigerated Food Council of Northern California, and as Secretary & Treasurer of the Sales Managers Club of San Francisco. In addition to the CGAEF, Van Gorkom serves on the Boards of the California Grocers Association, the Illuminators Educational Foundation, and is a member of the Olive Crest Food Industry Round Table and NFRA’s Refrigerated Promotions Committee. Jim has also served on the board of the City of Hope Northern California Food Industry Circle, the Safeway Foundation Gala committee and the Easter Seals Gala committee. Jim and his wife Judy live in Ripon, Calif., and spend a lot of time with their family, which includes two children and five grandchildren. In their spare time, they enjoy hiking, camping and travel. Jim also likes to drive his Boxster and other sports cars whenever he can.

Jim and Judy Van Gorkom

CAL I FO RNIA GRO CER | 45

MEET TRACY LAPE â&#x20AC;&#x201C; NEW ILLUMINATOR HEADLITE

Illuminators at the 2018 CGA Strategic Conference.

Ask Tracy Lape what her greatest challenge is as incoming Illuminator Headlite and her response will mirror the same issue facing the entire grocery industry – recruiting and retaining. Tracy Lape with Doug and Juan Trillas.

This May, Tracy Lape becomes the third female Illuminator Headlite, following in the footsteps of prior Headlites Carole Christianson and Mickie Sharp-Villanueva. That’s quite an accomplishment when you realize that this grocery vendor association has been around more than 90 years. For nine decades the Illuminators have supported both the California Grocers Association and the Western Association of Food Chains conventions, providing meals, social events and networking opportunities, while also providing college scholarships through its educational foundation. Like many companies, organizations and associations, the Illuminators are facing the challenge of drawing younger professionals, mainly millennials, into their ranks. It’s a challenge with no easy solution. “I don’t think I have the perfect answer,” she admits, “but I do see that a lot of the younger generation don’t necessarily want to spend their weekends and free time doing the traditional things the Illuminators do. I think it’s a conversation that has to be ongoing. We have to think of some changes in order to get there.”

Some of those changes include being more aware of time, expanding its social media community and addressing current topics like diversity and inclusion. “The conventions are going to be conventions,” Lape says. “So, we’re not going to be able to change that. Supporting CGA and WAFC is very important. And, that simply takes time.” But, she says, where possible, the Illuminators are working to shorten their meeting and event times. Lape is also concerned about how to encourage the industry’s up and comers to think beyond their current position. “To think about part of the business they’re not involved in, or a customer they don’t call on. I’ve always approached this business as, the more you know about all of it, the better you’re going to be in your job,” she says, adding that the Illuminators provide this kind of opportunity. “Getting an opportunity to look beyond what you do every day as your job, to understand your vendors, and other retailers that you might not be familiar with, is invaluable,” Lape adds. The challenge, she says is convincing millennials that a grocery career is worth pursuing.

While Lape has had success in the grocery industry, that wasn’t her goal coming out of college. “Actually, I was a newspaper reporter right out of college for two years with a local newspaper – the Daily Democrat, covering the California cities of Davis and Woodland.” But, like many would-be reporters the long hours and low pay took its toll and before long Lape was looking for something new. Fortunately, her father worked in the grocery industry and helped her land a job with then Lever Brothers as a sales rep. The rest, as they say, is history. From Lever Brothers, Lape moved on to Coca-Cola, followed by several Northern California brokers, a stint with Georgia Pacific and finally in 2011, NuCal Foods. Enter Jim Van Gorkom. At that time Jim was serving as Illuminator Sidelite and poised to take over the reigns as Headlite a year later. “Jim had me join and then encouraged me to get involved,” Lape recalls. “After I helped put on a few events, I was asked to be a Hilite, and here I am now.”

Continued on page 49 ▶

CAL I FO RNIA GRO CER | 47

◀ Continued from page 47

Doug and Tracy with family in Sioux Falls South Dakota.

Doug and Tracy at Inn at Spanish Bay.

your career. When you do that, you’re rubbing elbows with top retailers and maybe the president or vice president of a company that you wouldn’t necessarily meet.”

Timeout. Now for a quick history lesson. For many in the grocery industry, these titles raise eyebrows or cause minor head scratching. Keep in mind the Illuminators was created in 1928 to provide social activities for the CGA Convention and later the Western Association of Food Chains convention.

Tracy succeeds Paul Kamholz who now takes on the role of Dimmed Headlite after serving his year at the top. Tracy has great respect for what Kamholz accomplished, particularly his emphasis on raising the awareness of the organization’s educational foundation. Lape plans to build on Kamholz’s efforts but hopes to broaden its scope.

Another priority for the Illuminators’ newest Headlite is to become more involved in social media, and to that end the Illuminators have employed a social/digital media company.

Today, the Illuminators continue to “spread the lite of good fellowship”, but its emphasis has significantly shifted towards enhancing business relationships, providing education and leadership opportunities and supporting its Educational Foundation. Just think of the titles in terms of a normal Board of Directors. Time in.

“I want to continue that effort moving forward, but not just talk about scholarships,” she says. “I want to also talk about educating the community, whether retailer or vendors, about all the things we do.”

“We really need to work on that, and that’s a priority for me this year,” Lape says, adding, “I’m not the one that’s necessarily the most comfortable with that, but I’m going to have to get there.”

In 2018, Lape left NuCal Foods but stayed in the egg industry. Today, she is the Sales Director, West, for Pete and Gerry’s Organic Eggs, a small company that sells free-range and free-range organic eggs.

“Getting an opportunity to look beyond what you do every day as your job, to understand your vendors, and other retailers that you might not be familiar with, is invaluable.” For Lape, supporting conventions, having some fun and providing scholarships is just the tip of the iceberg. The Illuminators are expanding to provide a variety of growth opportunities for its members, including educational programming. “We give a lot of people an opportunity to do and learn things that they maybe didn’t have a chance to do,” she said, adding, “And, encourage them to get involved, because that’s the best way to enhance

While the Illuminators focus its energy on the CGA Strategic Conference along with the WAFC convention, the role the Association plays isn’t lost on Lape. “CGA does such a great job representing the grocery retailers and vendor companies to California legislators,” she says. “Many people within our industry aren’t aware of the positive impact CGA has on our business. I hope to help Illuminator members gain more awareness about CGA’s impact.”

Continued on page 50 ▶

2018 Illuminator officers CAL I FO RNIA GRO CER | 49

◀ Continued from page 49

2015 City of Hope marathon group in Tahoe.

Tracy on top of Mt. Whitney.

Now when not selling eggs, Lape and her husband Doug love to enjoy the great outdoors.

climbed California’s Mt. Whitney and completed a 17-mile ocean paddle along the Na Pali Coast in Kauai for her 50th birthday.

“We have a place in South Tahoe and spend as much time as we can there enjoying the scenery,” she says. “We boat, kayak, hike and bike and like to golf, too.”

Professionally, Lape serves on the Food Industry Circle Executive Committee, supporting the City of Hope, and has overseen the “Run for Hope” for 17 years. She’s a past President of the Sales Managers Club of San Francisco, the Northern California Food Broker Association, and the Food Industry Sales Association.

And if that isn’t enough, Lape is an avid runner and has completed six full marathons and at least 15 half marathons. She has

Her one-year term as Headlite begins with the WAFC convention this May in Desert Springs, Calif. and she’s ready to begin her tenure. When asked about the organization and its membership as a whole, Lape’s not shy to respond. “Everybody is passionate,” she says. “They want to work hard, they want to make the organization better and continue the Illuminator goal to partner with retailers.” ■

C O N G R AT U L AT I O N S Tr a c y L a p e

Pe te and Gerr y’s Or ganics, L LC

as The Illuminators new Headlite.

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

The Illuminators welcome

Tracy Lape

as the 2019 â&#x20AC;&#x201C; 2020 Headlite and thank Paul Kamholz for his excellent leadership this past year.

New Leaf TURNING OVER A

by Len Lewis

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

How many times have you, as retailers and individuals, used the phrase “turning over a new leaf”? For most of us, it refers to a shift or change in behavior, a fresh start, a new beginning, eliciting an image of spring, rebirth or growth. Forrest Gonsiewski

It’s much the same for New Leaf Community Markets, a four-store operation based in Santa Cruz, Calif., whose stores have continually raised the bar on high-quality sustainable foods and strong vendor and employee relations – placing it among the most progressive retailers in the state. “Our relationships with vendors, employees and the community make up the foundation of the New Leaf brand,” said Forrest Gonsiewski, senior director of the California region, who has been with the company 18 years. “Our commitment to sourcing natural, organic and local sustainable products is the reason customers shop our stores.” This is clearly part of New Leaf ’s DNA. Its sister company, New Seasons, based in Portland, Ore., operates 21 stores primarily

in Oregon and Washington and works under the same purpose-driven marketing and merchandising strategy. However, New Leaf is focusing on California alone. At present the company has four stores: two in Santa Cruz, and one store each in Capitola and Half Moon Bay. This spring, a fifth store will be opening in Aptos. The stores are comparatively small considering the range of products they carry, said Gonsiewski. Stores range in size from corner grocery concepts focusing on grab-and-go offerings, like the Downtown Santa Cruz store’s 11,000 square feet, and the Capitola beach café location at 15,000 square feet, to full-service offerings in its flagship Westside and Half Moon Bay stores, both at 23,000 square feet each.

“We expect our upcoming Aptos Village location to be a major neighborhood grocery destination with over 17,000 square feet,” Gonsiewski said. One of the things that sets these stores apart is that New Leaf, as well as New Seasons, were among the first B-Corp certified grocers in the U.S. “This certification is a very rigorous thirdparty verification system,” he said. “They come in and do detailed audits of things like sustainability, staffing, benefits, company culture and communications. And the stores have to be recertified every couple of years.” The audits are conducted by B-Lab, a nonprofit organization whose certification standards are governed by the Standards Advisory Council. Its goal is using business as a force for good around the world. “B-Lab’s philosophy is that of the triple bottom line – people, planet and profits,” Gonsiewski said. “And, there are quite a few products in our stores that are B-Corp certified.” New Leaf accomplishes this by maintaining strong relationships with producers in the community.

Continued on page 54 ▶ New Leaf product tastings CAL I FO RNIA GRO CER | 53

◀ Continued from page 53

New Leaf private label CommonVines

“We focus on working with local farmers and ranchers and other producers of high-quality products,” he said. “We want to make sure we have these products on the shelf so we are helping these producers come to market.”

offering everything from baked goods to salsas, wine and beer showed up and many of these products will be in our new and existing stores.”

This was recently underscored by New Leaf with the relaunch of a local signage program that highlights products in the meat and produce departments, making it easier for customer to identify local products throughout the store, said Gonsiewski. Being a “neighborhood market,” the majority of store products are natural and organic. “That’s our place in the market and I believe we do it very well. It’s our greatest strength and why people trust us and the integrity of the products we carry. Basically, it’s our point of differentiation in the marketplace,” Gonsiewski noted. Because of that, the company takes a lot of time to properly vet products before they are shared with the community. “We have a team of procurement and merchandising people who oversee different departments and categories to make sure that products coming to the store are up to our standards,” he added. Asked about expansion, Gonsiewski said the company is ramping up to open the Aptos store and, at the time of the interview, was in the process of hiring 100 people. At the same time, New Leaf was holding a local vendor fair at its offices in Santa Cruz. “We had been advertising it to the local community for some time,” he said. “We told everyone we were readying a new store and if they had a product locally made we wanted to talk to them. A lot of local vendors 54 | CAL I FOR N I A G R OC E R

New Leaf organic juice bar

“We are committed to attracting and retaining passionate staff by offering competitive compensation, benefits and development opportunities including $15/hour starting pay (up from California’s $12/hour state minimum wage), comprehensive health benefits, paid parental leave, and more,” he said. “These people are proudof the community and passionate about the products we sell. And they are able to articulate that to our customers.” “We’ve always encouraged our staff to know about and use the products we carry so they can talk to the customers about them,” he added. “Our people are really the secret sauce that makes everything work.”

New Leaf Envirotokens community program

“We are committed to attracting and retaining passionate staff by offering competitive compensation, benefits and development opportunities…” However, meeting the competition and the expectations of shopper is only part of the equation. Not to be forgotten are the people who work in New Leaf stores, said Gonsiewski. “That’s the real point of differentiation,” he said, adding that a comprehensive benefits package is an important component.

This includes prepared foods. All food preparation is done in-house at each location and every store has a full kitchen with teams of chefs, prep cooks and dishwashers. New Leaf ’s customers are a pretty diverse group in terms of socio-economics, but all of them seem to have one thing in common according to Gonsiewski – they care about what they put in their body and the foods they eat. “That spans all economic situations,” he said. “Of course, some are higher income than those who don’t have as much disposable income. It’s more about people’s personal choices. That’s the priority for them and the type of person that shops at New Leaf.” That customer is also looking for private label which New Leaf uses primarily in the prepared foods department for signature recipes and in bakery.

“We’re focusing on that category right now,” said Gonsiewski, noting that the company is working toward having some New Leaf items for the center store at the Aptos location – products that are eventually expected to show up in other stores. “We did some New Leaf branded cheese, jams and jellies in the past, but with the help of the New Seasons office, we’re hoping to have a nice California olive oil ready to go for the new store.”

“Evolution is always part of retailing,” he said. “Competition is fierce. I like to think it’s made us better merchandisers by finding new ways to highlight the attributes of products we already have in meat and produce. Those are our crown jewels.” For example, Gonsiewski and his team are looking for new ways to move produce around the store and tie it in with other products.

“We’ve always encouraged our staff to know about and use the products we carry so they can talk to the customers about them…Our people are really the secret sauce that makes everything work.”

New Leaf CitrusFest produce display

However, he emphasized that as part of its commitment to small local producers, New Leaf takes a different approach to private label. Instead of rebranding a manufacturer’s product as its own, the company highlights local vendors with clear information about the producer on the label. “A recent example of this is our new Common Vines wine that just launched in December, including a Chardonnay and Pinot Noir made by our partners at Bargetto Winery in Soquel,” he said. Gonsiewski said the chain’s expansion in California does not mean a radical change in its marketing and merchandising strategy.

New Leaf local product merchandising

“We recently launched a value-added produce program that includes cut fruit,” he said. “It’s done very well and we’re now trying to install cases closer to the prepared food department so they can be tied in together.” Another new project is the launch of a wok and ramen bar at the prepared foods department in the Aptos store. “It’s a first for New Leaf,” he concluded. “Customers pick out their sauce, vegetables, noodles or rice and we stir-fry it for them. I think customers will love it. We are also relaunching our pizza pie and slice program and we’ll be testing different items to see what we want to put on the menu.” ■

CAL I FO RNIA GRO CER | 55

KNOW THE LAW

New Challenges in Hiring Independent Contractors BY MI CHAE L J. NADER

A recent California Supreme Court ruling has created new hurdles for employers in using independent contractors. Last year, in Dynamex v. Superior Court, the Supreme Court of California departed from almost 30 years of legal precedent and policy of applying the Borello factors to evaluate the classification of independent contractors. Instead, the Court adopted a three-factor “ABC” test that is new to California law, is stricter than the Borello test, and establishes significant hurdles to using independent contractors. This article explains the ABC test, surveys California court decisions that have applied Dynamex and explains what California employers can do to minimize risk when using independent contractors. The ABC Test Under the ABC test, a worker is properly considered an independent contractor if the hiring entity can establish each of the following prongs: A The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact. B The worker performs work that is outside the usual course of the hiring entity’s business.

C The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. The Borello test includes all of the standards of the ABC test, but it allows more flexibility and does not make any specific prong dispositive. For example, prong A of the ABC test mirrors what Borello describes as “the principal test of an employment relationship,” which is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Prong B is also reflected in Borello where Borello asks “whether the service rendered is an integral part of the alleged employer’s business.” Prong C also has a comparable factor under Borello, which is “whether the one performing services is engaged in a distinct occupation or business” and “the degree of permanence of the working relationship.” Unlike the Borello test, Dynamex requires that each of the ABC factors be met, and thus if any one factor is not met, the worker cannot qualify as an independent contractor.

Decisions Applying Dynamex California courts and agencies had nearly 30 years to develop the Borello jurisprudence. The end of April 2019 will mark just the first year that courts and agencies have applied the ABC test. Thus far, California courts applying Dynamex have provided the following guidance: The ABC test does not apply in the joint employer context. Courts have noted that the Supreme Court of California’s primary policy concerns in Dynamex were that misclassifying workers as independent contractors deprives federal and state governments of billions of dollars in tax revenue, and deprives millions of workers of labor law protections. Those policy concerns do not apply in a joint employment context because the alleged employee is already considered an employee of the primary employer. The ABC test only applies to claims under the wage orders. Courts applying Dynamex have acknowledged that the ABC test applies only to violations of the wage orders, and not, for example, claims under the workers’ compensation statutes, the Unemployment Insurance Code, or other provisions of the California Labor Code. Courts have also recognized the practical challenges involved with a trial court applying the ABC test to wage order claims but the Borello test to other similar claims in the labor code. Continued on page 58 ▶

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KNOW THE LAW

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Similarly, a company’s classification determination must involve both the Borello and ABC tests because the full panoply of laws (including the labor code, Unemployment Insurance Code, and wage orders) may apply to each and every worker. The ABC test may apply both retroactively. This is still an open question, and while courts have not yet spoken definitively on whether the ABC test applies retroactively, courts have noted the following: (a) the Supreme Court of California denied later requests to modify the Dynamex decision to apply the ABC test only retroactively; (b) generally, judicial decisions are given retroactive effect; and (c) some courts have claimed that the ABC test merely extended principles already stated in Borello and thus represent no great surprise that would warrant exclusion from the general rule of retroactivity. The meaning of the “usual course of business” in prong B of the ABC test may not be limited to the primary business; it may also apply to other regular parts of the business. Courts applying the prong B of the ABC test have suggested that the “usual course of business” requirement is not limited to the primary business of the hiring entity. Other “regular” parts of a company’s business may also be included in this test, meaning that the test requires that the worker not perform any work that is performed by other employees with regularity.

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Prong C requires the worker to have an already-established business. Courts applying prong C of the ABC test have held that in order for a worker to qualify as an independent contractor, the worker must not merely be prohibited or prevented from engaging in an independently established business. Instead, the worker must in fact be providing services for other entities or otherwise have an established business independent of the relationship with the hiring entity. Mitigating Risks Related to Misclassification Employers may take several steps to limit the risks of misclassifying independent contractors, including the following: With regard to prong A, employers may take the following actions • Use a written contract, and do not include at will language in the contract. • Provide payment for tasks completed rather than for time worked. • Allow the contractor to hire employees to assist in performing services without company approval. • Require the contractor’s investment in equipment necessary to perform the job. • Avoid reimbursement of operating expenses. • Avoid the use of a company office or office equipment. • Do not require regular business hours of work. With regard to prong B, employers may take the following actions: • Clearly and precisely define the usual course of the business in all publications, including on websites.

• Draft independent contractor agreements that clearly distinguish between the duties of the contractor and the usual and regular parts of the business. With regard to Prong C, employers may take the following actions: • Only contract with individuals who are incorporated into a separate legal entity. • Avoid permanent relationships, and include expiration dates in contracts. • Allow contractors to work elsewhere, have their own clients, and advertise their own services to others through the use of their own business cards or other advertising materials. • Do not include non-compete provisions in the contract. Possible Legislative Response There have been significant efforts to provide a legislative response to the Dynamex decision. Labor has advocated for a bill that would apply the ABC test in all contexts. Another bill has been introduced to reaffirm that Borello is the proper test in all contexts for the classification of independent contractors. Additional efforts are being made at the state capitol to pass legislation that would include carve outs from the ABC test for specific industries. The legislative process will take some time to work itself out, and there are no guarantees that the ABC test will go away. Companies may want to review their classification practices and their current independent contractor arrangements with an eye toward complying with the strict requirements of the ABC test in order to minimize potential liability. ■ Michael J. Nader is a shareholder in the Sacramento office of Ogletree Deakins. Ogletree Deakins is one of the largest labor and employment law firms representing management in all types of employmentrelated legal matters.

Thank you to this year’s honorees of the Chair’s Circle. Criteria: Is a member of the Association in good standing, exceeded a minimum annual participation of $60,000 and participate in a minimum of five individual sponsorship opportunities with the California Grocers Association and/or CGA Educational Foundation. Anheuser-Busch InBev Bimbo Bakeries USA C&S Wholesale Grocers Coca-Cola North America/Reyes Coca-Cola Bottling, LLC Kellogg Company Kimberly-Clark Corporation MillerCoors Tyson Foods, Inc. United Natural Foods, Inc./SUPERVALU

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MOMMY BLOGGER

Tighter Purse Strings Make fo r Tough Choices K I M B ER LY M I L L ER WR IT E R , ACT R E S S

Having to manage with less income taught me valuable lessons I still employ. When my husband lost his job six weeks before our daughter was due to be born, I had precisely one panic attack and then got to work on our budget. Food is one of the most significant line items in our monthly budget – unlike our mortgage and pre-school tuition for our toddler, it’s negotiable. In an instant, my plan for a maternity leave full of grocery delivery and a steady stream of takeout evaporated and was quickly replaced by meal plans revolving mostly around casseroles. For the most part, my little family has been lucky, we’ve had reliable, regular income, and familial help would be available if needed. I knew we’d weather this storm; it was mostly

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a matter of how long I could stretch our savings by cutting out anything that could be considered an indulgence. Not all American families are so lucky, up to 80 percent of middle-class families live paycheck-to-paycheck, and an analysis last year by Magnify Money found that many places in the United States even with securing a six-figure salary isn’t enough to cover necessary living expenses. Half of the hardest cities to cover living costs, even among high earners were in California, including San Francisco, San Jose, Santa Cruz, San Diego and Napa. Meaning the sudden loss of salary can be far more devastating than opting for private label cereal. I made the obvious cuts: organic anything had to go. Protein was to be stretched instead of savored. Fresh produce was replaced by frozen to cut down on food waste, and I even dusted off the bread machine we’d gotten as a wedding gift.

I planned every meal and every snack and bought solely what we needed to meet our nutritional needs. And I did what any other millennial mom would do; I crowdsourced ideas for keeping my newly minted family of four financially solvent until we became a two-income family again. Much of the advice I received from my local mom’s group was the tried and true stuff my fairly frugal family implemented when I was growing up: plan you shop around sales, buy in bulk when possible, scour the scratch and dent section and stock on nearly expired food and then freeze it until ready to serve. Luckily, my husband found a new job fairly quickly, and we were back on track financially after a brief unpaid paternity leave, but learning to make due on less was an eye-opener (and kind of a fun project) for this creature of culinary habit. While I’m glad to be back to a slightly better brand of coffee, there are a few changes that I’ll be making permanent… especially now that our food budget will need to be stretched to feed four people with teeth soon enough. ■

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