California what’s your story? PAGE 48
creating an engagement culture PAGE 54 2018, ISSUE 5
CALIFORNIA GROCERS ASSOCIATION
growth:
the intersection of instinct and Data page 30
Thank you for the support of our family brands.
Welcome to the CGA Strategic Conference ® ™ © 2018 Kellogg NA Co.
January 6 – 13, 2019 Four Seasons O’ahu at Ko Olina Resort Oahu, Hawaii
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THE SECRETS OF SOCIAL MARKETING SUCCESS: How Social Marketing Gets You Seen, Attracts Talent and Makes You Money Brian Carter Best-Selling Author
BRING A NEW SET OF BRIGHT IDEAS INTO 2019 Join your independent grocer family for a week of creative thinking, inspiration and relaxation. In a world that offers few opportunities to slow down and reset, the New Year marks a time when renewal is possible. Provide yourself with the occasion for fresh thinking by registering for this year’s Symposium. You will come away with a renewed spirit and fresh ideas that will benefit your business for years to come. Registration includes: • 7 nights resort accommodations from January 6 – 13, 2019 • All conference educational sessions and programs • Opening and closing night receptions
SUPERHERO LEADERSHIP: How Everyday People Can Have an Extraordinary Impact
• Breakfast functions (Tuesday, Wednesday & Thursday) For complete information and to register, visit www.cagrocers.com/symposium, or call (916) 448–3545
Brett Culp Acclaimed Filmmaker
EVENT PRODUCED BY CALIFORNIA GROCERS ASSOCIATION INDEPENDENT OPERATORS COMMITTEE
CGA | BOARD OF DIRECTORS
EXECUTIVE COMMITTEE
CHAIRMAN APPOINTMENTS Independent Operator Committee Chair DIRECTORS
CALIFORNIA GROCERS ASSOCIATION
Second Vice Chair Phil Miller C&S Wholesale Grocers
First Vice Chair Kendra Doyel Ralphs Grocery Company
Treasurer Hee-Sook Nelson Gelson’s Markets
Kevin Arceneaux Mondelēz International Inc.
Dave Jones Kellogg Company
Lynn Melillo Bristol Farms
Jon Alden Jelly Belly Candy Co.
Mark Foley Raley’s
Bob Richardson The Clorox Company
Jaclyn Rosenberg Nielsen
Teresa Anaya Northgate Gonzalez Markets
Damon Franzia Classic Wines Of California
Doug Minor Numero Uno Market
Joe Toscano Nestlé Purina PetCare
Joe Angulo Bodega Latina Corp.
David Higginbotham Stater Bros. Markets
Tim Murphy Costco Wholesale
Rob Twyman Whole Foods Market
Mark Arrington Post Consumer Brands
Michel LeClerc North State Grocery Inc.
Nicole Pesco The Save Mart Companies
Jim Van Gorkom NuCal Foods
Denny Belcastro Kimberly-Clark Corporation
Hillen Lee Procter & Gamble
Mike Ridenour The Kraft Heinz Company
Michael Walton Unilever
Jeanne-ette Boshoff MillerCoors
Eric Lindberg, Jr. Grocery Outlet, Inc.
Casey Rodacker Mar-Val Food Stores
Richard Wardwell Superior Grocers
Bob Bukovec Tyson Foods, Inc.
John Mastropaolo Chobani, Inc.
Greg Sheldon Anheuser-Busch InBev
Karl Wissmann C & K Market
Brent Cotten The Hershey Company
Jonathan Mayes Albertsons Companies, Inc.
Jeff Sigmen Reyes Coca-Cola
Kevin Young Young’s Payless Market IGA
Willie Crocker Bimbo Bakeries USA
Joe McDonnell Campbell Soup Company
Lee Smith Smart & Final Stores
Steve Dietz United Natural Foods, Inc.
Mark McLean CROSSMARK
Rick Stewart Susanville Supermarket IGA
Jake Fermanian Super King Markets
Casey McQuaid E & J Gallo Winery
Elliott Stone Mollie Stone’s Market
President/CEO Ronald Fong
Senior Director Events & Sponsorship Beth Wright
Dennis Darling Foods Etc.
Senior Vice President Marketing & Business Development Doug Scholz Vice President Communications Dave Heylen Executive Director CGA Educational Foundation Shiloh London, CFRE
Senior Director Government Relations Aaron Moreno Director CGA Educational Foundation Brianne Page Director Digital Communications Nate Rose Controller Gary Brewer
2 | CAL I FOR N I A G R OC E R
Secretary Renee Amen Super A Foods
Chairman Bob Parriott Twain Harte Market
California Grocer is the official publication of the California Grocers Association. 1215 K Street, Suite 700 Sacramento, CA 95814 (916) 448–3545 (916) 448–2793 Fax www.cagrocers.com For association members, subscription is included in membership dues. Subscription rate for non-members is $100. © 2018 California Grocers Association
Publisher Ronald Fong rfong@cagrocers.com Editor Dave Heylen dheylen@cagrocers.com For advertising information contact: Dave Heylen dheylen@cagrocers.com
CONTENTS | ISSUE 5
FEATURES
30
48
What’s Your Story?
Growth: The Intersection of Instinct and Data CGA Strategic Conference keynote speaker Peter Sheahan shares his insights on how robust growth is found at the intersection of data and instinct, where the successes of the past meet the potential of the future.
68
The First lady of CGA
Linda Parriott
COLUMNS
40 An Irrational Industry As much as we’d like to think people make food choices on a rational basis, that’s not the case. Retailers must embrace the irrational and emotional side of people if they want long-term success.
President’s Message Summit Reflects Innovative Spirit. . . . . . . . 5 Chairman’s Message Making a Difference. . . . . . . . . . . . . . . . . . . 7 Viewpoint Trend Lines.. . . . . . . . . . . . . . . . . . . . . . . . . 12 Government Relations Anything Is Possible, But Unlikely. . . . . . . 18 Capitol Insider The Art of Advocacy. . . . . . . . . . . . . . . . . . 20
54 Creating an Engagement Culture We all want to love our job and enjoy our coworkers. We want a positive environment where we feel valued, heard and a vital part of a team. The answer: create an engagement culture.
Inside the Beltway Standards of Identity and Why You Should Care?. . . . . . . . . . . . . . . . 22 Guest Column Tariffs 101 and What They Mean for the Industry. . . . . . . . . . . . . . . . . . . . . . 23 Washington Report Challenges Spur Innovation . . . . . . . . . . . . 26 Mommy Blogger It Takes an (Online) Village.. . . . . . . . . . . . 76
DEPARTMENTS
62 Effective Inventory Management Industry veteran Larry Miller shares his seven keys to running a growth store and explains how leading retailers are using interpreted data to get to the hear of growing sales and busting shrink.
CGA News. . . . . . . . . . . . . . . . . . . . . . . . . . 14 Outside the Box New Retail Perspectives.. . . . . . . . . . . . . . . 36 Know the Law Valuation Discounts in Modern Estate Planning. . . . . . . . . . . . . . . 70 Index to Advertisers. . . . . . . . . . . . . . . . . . 75
CAL I FO RNIA GRO CER | 3
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PRESIDENT’S MESSAGE
Summit Refle cts Innovative Spirit
RO N F O N G PR E S IDE N T AN D CEO CALIFOR N IA GR OCE R S AS S O CIATIO N
CGA’s first-ever Grocery Industry Leadership Summit allowed grocery execs to dive deeper into big picture grocery topics. Innovation is one of CGA’s guiding principles. For grocers to thrive in a rapidly changing business environment, they must quickly adapt to developments in the political and economic realm. It therefore stands to reason that the association representing their interests should continuously be looking for ways to do the same. This year, CGA introduced a new initiative to help member companies successfully navigate through these increasingly uncharted territories – The California Grocery Industry Leadership Summit (see CGA News on page 14). For the first time, CGA convened a small group of executives from California’s diverse retail grocery industry for two days of collaborative and honest discussions about the issues that impact Californians and, by extension, the grocers that serve them. This smaller format was designed to allow participants to take deeper dives into big-picture topics in a setting more conducive to dialogue and frank discussions among attendees. To that end, we created an agenda that brought together economists, journalists, political operatives, and elected officials
to take a look forward and discuss what they think lies ahead on the political and economic horizons. And, rather than sit in a big audience, just listening to presentations, grocery executives were encouraged to be part of the discussion, guiding presenters with their questions about subjects such as the future of labor and housing markets, the political outlook for the next decade, and the evolving nature of retailers in the growing internet-driven economy.
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Most notable was the dialogue our executives had with our state’s gubernatorial candidates – Democrat Gavin Newsom and Republican John Cox. Our Leadership Summit provided an opportunity to ask them industry-specific questions such as
how they would address the increasing theft problem grocers have been facing and what they would do to help businesses thrive in an increasingly regulated state. Another highlight was the appearance of California’s Attorney General, Xavier Becerra. Unbeknownst to many, the office of the Attorney General can have a significant impact on business operating in this state. From Prop. 65 to public safety policy to privacy regulations, the decisions made by him and his staff can really affect our industry. The Attorney General engaged our executives in a wide-ranging discussion centered on the shoplifting epidemic our industry has faced in recent years. The result of this discussion was Becerra’s offer to convene a meeting with our top executives and law enforcement representatives from California’s largest jurisdictions to discuss how to address this pressing issue. Member engagement is the primary mission of any association, and CGA is always on the lookout for ways to take it to the next level. It is my hope this Leadership Summit is the start of a new CGA tradition that provides our top industry executives an opportunity to sharpen the tools that allow them to thrive in California’s ever-changing economic and political landscape. ■
CAL I FO RNIA GRO CER | 5
2018
CALIFORNIA COMMUNITY IMPACT REPORT Thanks to generous contributions, we create brighter futures for our neighborhoods.
We support causes that impact our customers’ lives.
$7.1 Million
62,658
given
20 Million
organizations
lives impacted
30 Thousand
OVER
OVER
2,728
Meals served through HUNGER IS®
354
Veterans receiving health care and access OVER
38 Thousand
Children with better test scores or attendance
Patients with cancer provided access to alternative medicine
2,732
People with disabilities received access to care and treatment
Mission Statement Our Foundation supports causes that impact our customers’ lives. The stores provide the opportunity to mobilize funding and create awareness in our neighborhoods through our employees’ passion, partnerships with our vendors and the generous contributions by our customers. We take pride in ensuring that the vast majority of the funds we raise stays in local communities and reflects what is important to our customers and employees.
Data gathered from Foundation accountant and grantees year-end reporting.
Learn more at safewayfoundation.org
*Impact numbers achieved in 2017
CHAIRMAN’S MESSAGE
Making a Difference
B O B PA R R I OT T TWAIN HAR T E MAR K E T
Community support has raised my confidence in the future of our country. In late July I was at home with the flu and feeling sorry for myself without the energy to do anything. My wife, Linda, was on a safari in Africa while my son and two of my grandsons had moved into my house to get a break from family stress. During this same time, two Northern California fires, the Mendocino Complex fire and Carr fire, were raging out of control. I was sick of the state burning up and tired of being ill in a crowded home, but what could I do? I called my staff at Twain Harte Market and asked them to start a donation fund to help those impacted by the fires. Asking our
customers and staff to contribute as little as one dollar, I pledged $2,500 in matching funds for each donation. When a week later I finally got back to work and asked how we did on fire donations, my bookkeeper informed me we were at $3,400 donated. OMG, I only offered to fund $2,500. I swallowed hard and agreed to match all donations to that date, but I couldn’t match anymore. Remember this was eight days into our program!
Needless to say, my personal pity melted away as I realized again how wonderful and generous the folks of my little community of 2,500 people are. For an example of how committed they are to making a difference in our world, one young checker named Rowan, who is 18-years old, raised about 60 percent of all the donations. It’s people like Rowan, who make me feel a lot more confident about the future of America. They are the kind of people who serve as a reminder, that even when you are sick or feel unable to make a difference, just go for it; the world is waiting for you.■
Donations continued though, and by the end of August, customers, staff, and Twain Harte Market had raised $8,000 to help the victims of these two destructive fires.
iStock CAL I FO RNIA GRO CER | 7
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VIEWPOINT
Trend Lines
K EV I N CO U PE FOUN DE R , MOR N IN GN E WS BEAT.CO M
Are we prepared for inevitable change? That’s a question worth asking often. I love it when stories focusing on industries other than the supermarket business teach us lessons about competition and consumer behavior and make us think about whether we are ready for the inevitable. Or, ready for the likely, the probable or even the possible. General Carl Von Clausewitz is reported to have said, “Prepare for what the enemy can do, not what he might do.” Which strikes me as a pretty good admonishment for business as well as warriors. After all, these days, we’re all warriors to some extent. The question we have to continually ask ourselves: Are we prepared? Some examples of recent stories that got me thinking about preparation: There was a report in the New York Times that New York University School of Medicine is going to cover the tuition of all its students, regardless of merit or need, citing concerns about the “overwhelming financial debt” facing graduates. This is a big deal – graduates of the NYU medical school were emerging with about $184,000 in average debt, while nationally, the average debt for graduating medical students was even higher on average, at $192,000.
12 | CAL I FOR N I A G R OC E R
married, buy a house with a basement and lots of storage space, have two or three kids, and then buy a minivan or SUV?
This seems to be a trend that is gathering some momentum. In California, UCLA’s David Geffen School of Medicine has a $100 million fund that pays for the cost of medical school for roughly 20 percent of its enrollees, based on merit.
What they are facing is a growing number of young adults who are waiting longer to get married and have fewer children, are living in an urban environment, and may not even own a car – all while having less money because of oppressive student debt.
I’m glad that we’re doing something to enable more people to go to medical school, but I must admit that this story made me think about debt more than medicine. Maybe that’s because, as the father of three adult children, I’ve had lots of conversations with my kids’ friends about oppressive student debt (My own kids came out of college virtually debt-free, for which they can thank their mother, who put almost every penny of her teacher’s salary aside for a dozen years to pay for their schooling.).
Are you prepared?
There is, in fact, a huge percentage of people, who enter adulthood saddled with enormous amounts of college-related debt, who will not be able to engage in the kind of discretionary spending for their age group that traditionally has helped to drive economic growth in this country. That’s a problem. It is, I think, just part of a broader series of changes that threaten many traditional retailers. How many of them are engineered for a world in which young adults get
(One suggestion, if I may. Companies can help address this problem by investing in student loan repayment programs as an employee benefit. Not only would this help employees, but it would have the added advantage of making a company an employer-of-choice. Just sayin’…) Speaking of young people, there was another Times story that I found terrifically interesting within the context of our conversation. It was about JÜV Consulting, a Brooklyn-based marketing firm that is designed “to illuminate the inner workings of kids these days without condescending to them.” In other words, figure out how to talk to – and sell to – people between the ages of 10 and 21, which doesn’t always come naturally to people older than that. And so, the entire company is made up of young people ages 14-22; the co-founder CEO is 19 and a rising sophomore at Yale.
VIEWPOINT
The company has five senior partners, 15 junior partners and 90 consultants on staff, all paid and all networking with friends and friends of friends all over the world. Personally, I think this is sort of ingenious. Smart and entrepreneurial young people who have figured out a way to market themselves by marketing to people just like themselves. And in the process, coming up with answers to questions that a lot of people and companies are asking. When you look at this age group, which soon will be at the center of your marketing target, are you prepared? Finally, I was intrigued by a Houston Chronicle story about how some malls, desperately seeking relevance – not to mention survival – are embracing the use of
green space “where adults can practice yoga, kids can run around and families can enjoy a movie night on the lawn.” They are, the story said, “increasingly focused on creating a brick-and-mortar experience that can’t be replicated online. In recent years, malls have focused on adding high-end restaurants, bars and movie theaters to attract patrons. Green space is a natural extension of that movement, one that takes a page out of urban planning around parks.” At one Houston mall, the green space is surrounded by restaurants, so that parents can sit on patios and watch their children play. There also are chairs and tables and oversized lawn games, and, at one end, a giant video screen that can play movies, concerts and even live sporting events.
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It is yet another example of how competitive realities are forcing companies to make disruptive choices and even radical decisions about their business models. Some are embracing the moment more than others, and some are recognizing they have to be making long-term decisions that account for the fundamental ways in which consumer behaviors are changing. When you view these changing realities and shifting consumer behaviors, are you prepared? “Readiness is all,” William Shakespeare wrote in “Hamlet.” He may have written those words more than 400 years ago, but the sentiments are perhaps more relevant today than ever. ■
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CAL I FO RNIA GRO CER | 13
CGA NEWS
C GA H o s t s Firs t C a liforni a Gr oc e ry I n d us try Lea ders hip S u mmi t
(L to R) Ron Fong, CGA; Kendra Doyel, Ralphs Grocery Co.; California Attorney General Xavier Becerra; Hee-Sook Nelson, Gelson’s Markets; CGA Chair Bob Parriott, Twain Harte Markets.
Global business leaders attend the annual World Economic Forum in Davos, Switzerland. Academics and thoughtleaders have their Aspen, Colorado Summit. Members of the independent film industry make a standard journey to the Sundance Film Fest in Park City, Utah. This year, for the first time, CGA hosted its Leadership Summit in Santa Monica. This inaugural convening of senior grocery industry leaders yielded an unprecedented opportunity to take a ‘long-view’ of trends in business, economics and politics in order to more thoughtfully strategize for their enterprises, for the industry and for the association’s agenda. The effort was a direct result of the CGA Board’s 2017 strategic plan which gave direction to the staff and volunteer leaders to expand CGA’s ‘reach and leadership.’
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“The summit format has been something the Association has wanted to do for some time,” says CGA CEO Ron Fong. “We wanted to create a space for thoughtful dialogue on issues not typically covered, or at least in an in-depth way, at our Board meetings and conferences.”
Fong says it was important to keep the initial group small so that conversations would be collaborative and specific. Discussions were led by a professional facilitator to ensure full participation by members and to help the group achieve its agreed-to objectives. At the outset, members agreed that it was important to leverage the gathering to get ahead of future challenges, learn from each other, find alignment on important issues and discuss ways to elevate CGA and the industry’s agenda. Day One began with Dr. Chris Thornberg, an economist whose presentation lent big-picture perspective to the remainder of the day’s dialogue. He was followed by conversations with Rob Lapsley, President of the California Business Roundtable, Attorney General Xavier Becerra, and the two candidates for California Governor – republican businessman John Cox and democrat Lieutenant Governor Gavin Newsom. Two Raley’s leaders, CEO Keith Knopf and COO (and past CGA Chairman) Kevin Konkel, led an important dialogue around their company’s recent decision to
CGA NEWS
Dan Walters, columnist, CalMatters, shared his insights on California's political landscape.
aggressively market healthier products and how similar marketing trends will influence their company’s and the industry’s position on food policy now and in the future. “Keith’s and Kevin’s presentation led to exactly the kind of dialogue we were aiming for,” Fong admits. “We were able to frame an early marketing trend through the lens of an individual retailer then discuss, candidly and in detail, implications for the industry and – so that we’re prepared – what the
Republican California gubernatorial candidate John Cox discusses his platform with moderator Cassandra Pye.
expectations are of CGA when our members choose different pathways.” At day’s end, informal conversations continued over dinner and evening gatherings – as Fong hoped they would. Day Two of the Leadership Summit opened with California political historian and CalMatters columnist Dan Walters who provided relevant background and context to guide the group’s dialogue. Walters shared his unique perspectives on how candidate
(L to R) Keith Knopf, CEO, and Kevin Konkel, COO, Raley’s, led a discussion on food policy.
Gavin Newsom might govern, if elected, and declared the California Republican Party all but dead. Walters was followed by an informative and, at times, provocative primer on implicit bias, diversity and inclusion, led by Albertsons Senior Vice President, External Affairs and Chief Diversity Officer Jonathan Mayes and Cassandra Pye, CEO of 3.14 Communications, and the Summit’s facilitator. Pye provided a brief but comprehensive lesson on the cognitive science which explains how implicit bias works inside all our brains while Mayes made the case for the bottom-line benefits of diversity programs inside companies. Said Fong: “This was such an important discussion for us to have at this time, given all the bad actors in the news. I was really pleased with the group’s engagement and I’m certain this is just the beginning of properly and thoughtfully addressing issues like bias as it relates to our employees, our customers and our industry.” Angie Wei of the California Federation of Labor (AFL-CIO) joined the Association’s leaders for the final facilitated discussion. Wei, too, was candid, thoughtful and engaging. In addition to sharing in a frank discussion regarding the future of labor (“…automation will impact all of us…”), Wei made a compelling case for a single payer health care system in California (…“if we can find a way to limit this benefit to employers, workers and medical professionals…”). Continued on page 16 ▶
Economist Dr. Chris Thornberg.
Angie Wei, California Federation of Labor (AFL-CIO). CAL I FO RNIA GRO CER | 15
CGA NEWS ◀ Continued from page 15
She also expressed a sincere willingness to keep lines of communication more fully operative and direct between labor and the industry. Questions and comments after her presentation were also thoughtful and frank. CGA leaders gave a strong endorsement to the focus and format of this first-time gathering.
“The more we educate especially with focus on how decisions impact, short or long term, our people (customers and employees), the more common ground we may discover or at minimum, create a shared understanding when issues or conflicts arise,” offered Raley’s Keith Knopf.
“This effort is much appreciated,” added, Richard Draeger, of Draeger’s Markets. “Great job to you and your staff.”
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Fong, too, was pleased with the outcome. “This inaugural event exceeded my expectations,” he exclaims. “Our desire was to create an environment for thoughtful, long-range thinking and planning. We certainly did just that.” ■
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GOVERNMENT RELATIONS
Anything Is Possible, But Unlikely
A A RO N M O R EN O S EN IOR DIR ECTOR CGA GOV ER N MEN T R ELATION S
When looking at this year’s Governor’s race, it seems more like a coronation than a campaign. There is an air of inevitability to Democratic gubernatorial candidate Gavin Newsom in his quest to move across the hallway at the State Capitol from the cramped quarters of the Lieutenant Governor’s office to the hallowed halls of the Governor’s office and lead the world’s fifth largest economy. This is not to say that John Cox, the Republican candidate, has no chance to win. In political races, anything is possible (search “Dewey defeats Truman” on Google). But while something may be possible, it can at the same time be highly improbable. Thus, is the case with Mr. Cox. The math just doesn’t add up. Put aside for a moment, a July poll conducted by the nonpartisan Public Policy Institute of California (PPIC) that found Newsom well ahead of Cox at 55 to 31 percent. The most recent voter registration statistics as reported by the Secretary of State just before the June primary showed Democrats representing 44.4 percent of eligible voters versus the 25.1 percent of eligible voters registered as Republicans. Notably, there are more voters registered with No Party Preference (25.5 percent of them, as a matter of fact) than Republicans. The Cox campaign begins with a significant numerical disadvantage. At this point, 18 | CAL I FOR N I A G R OC E R
one might be tempted to ask: What about the No Party Preference voters? Well, the math still doesn’t add up. The PPIC released a report in August 2018 titled “California’s Independent Voters” that sought to determine the political leanings of the increasing number of Californians who register neither as Democrats nor Republicans. Not surprisingly, they line up pretty closely with the state’s overall party registration numbers, finding that 43 percent of independent voters lean more Democrat, 29 percent lean Republican, and 28 percent lean toward neither party. One other finding of this survey does not bode well for Cox–the breakdown of how independent voters fall on the ideological spectrum. About 32 percent identified themselves as liberal. Around 40 percent identified themselves as middleof-the-road, and 29 percent identified themselves as conservative. So, let us now return to the PPIC poll numbers showing Newsom at 55 percent and Cox at 31 percent. The Cox campaign obviously downplayed the results, with a spokesperson noting, “July polls are a name ID beauty contest.”
That’s not necessarily wrong, but it forces those following the race to ask whether or not it is even possible to make up so much ground in four months. Without even getting into the politics and policies, viewing this as a purely mathematical exercise (think Peter Brand in “Moneyball”) suggests the answer to that question is no. That answer becomes a little more solid when you look back to the 2016 presidential election where 61 percent of the electorate voted Democrat and 31 percent voted Republican. The bottom line is that California is a politically center-left state that favors Democrats. The last time any Republicans won statewide offices was in 2006 when Arnold Schwarzenegger was re-elected Governor and Steve Poizner was elected Insurance Commissioner. The political make-up of the electorate has evolved in such a way that any Republican running statewide does so into incredibly strong headwinds. Does John Cox have what it takes to overcome that headwind and upset Gavin Newsom? Probably not, but anything is possible. Again, type “Dewey defeats Truman” into Google to see what exactly is possible. ■
CAPITOL INSIDER
The Art of Advocacy 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
Advocacy is defined as the act of championing a particular cause or policy. Simple, right? Perhaps not. Brown
Advocacy. Seems simple enough, until you consider it is an art often complicated by overriding emotions and inadequate preparation.
is often found in long-term relationships and in situational scenarios. CGA works diligently on the former and vigorously pursues the latter.
We all engage in advocacy in one form or another; it’s part of our everyday interaction with people, both personally and in business. Sometimes persuasively, sometimes not and yet we try because it’s a function of our existence.
Case in point is the time CGA members spend coming to Sacramento for Grocers Day at the Capitol, attending local legislative days, and hosting legislative members to store and distribution center tours. Activities like these increase awareness of the breadth of issues impacting the industry.
Ultimately, success greatly depends on whether we understand the mindset of the audience, whether the messenger is the correct person for the job, and whether the message is shaped in the most impactful way. On the public policy front, CGA does what most do in their daily lives; except, to a significantly different audience consisting of dozens of elected representatives whose positions depend on election cycles and term limits, and to government regulators with their pervasive powers. CGA is constantly searching for pathways to a positive end with people who have substantially different backgrounds and interests. Experience has shown that the key to breakthrough opportunities in government 20 | CAL I FOR N I A G R OC E R
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While legislators and regulators alike are familiar with who we are, they seldom grasp the complexity of the business until they receive the behind the scenes look at what we do. Filling in these knowledge gaps helps us find and build on a commonality of interest.
Clearly, advocacy in today’s political world far exceeds the more simplistic method of presenting facts and opposing counterpoints. The evolution of communication from letters to faxes, then to email and social media, now provides the opportunity to deluge members with messages, some true and others not. Contact without adequate content can create more problems. The dividing line usually rests on whether the message is about things and practices, or people. The grocery industry is an excellent case study. The industry is referred to singularly, but obviously consists of many essential layers. Single-store operators, large chains and warehouse-style stores all share a number of similar issues, but at the same time are impacted very differently. Affect one, and you affect them all, and yet there is little appreciation for this fact in the State Capitol these days. CGA has done a great job in adjusting to this reality by changing the way we message to our audience in Sacramento. We have a great story to tell, and we need to set about doing it on a more regular basis. Words and phrases like – diversity, generosity, team, community, and solution-oriented – must become part of our speech pattern. It must characterize how we advocate going forward, and with it, relationships will form and solutions will surface. To do anything less will make us witnesses to history, busy making noise with fewer and fewer taking time to listen.■
The ONLY Federal Credit Union in the United States chartered to serve grocery industry employees and their families www.trugrocer.com
INSIDE THE BELTWAY
S ta n d a r d s o f I d e n t i t y a n d W h y Yo u S h o u l d C a r e ? J EN N I F ER H ATC H ER S EN IOR V ICE PR ES IDEN T GOV E R N ME N T AN D PUBLIC AFFAIRS FOOD MAR K ET IN G IN S TIT UTE
Food retailers, as the bridge linking the products and the consumers, will be asked to weigh in on standards of identity, particularly regarding what customers think and want. Can milk be called milk if it’s not from a lactating mammal? Can the food shape that results from forcing vegetables through a sieve or ricer be called “riced” even if it is not grown in a flooded field? Can cheese be called parmesan if it is not from Parma, Italy? When you joined the grocery industry, did you ever expect to have to ponder these questions as they pertain to regulations, but also the potential for customer confusion? These and many other products and questions are at the center of a discussion between our food regulators and segments of the food industry regarding standards of identity. As in all things, the customer is the center of the focus. Within the complex Federal Food Drug and Cosmetic Act (FFDCA) (21 U.S. Code §341) lies a directive for the Food and Drug Administration (FDA) to establish definitions and standards for food. A common paraphrase of the code reads, “in an effort to promote honesty and fair dealing for the benefit of consumers, the FDA is authorized to establish by regulation, a common or usual name, a reasonable 22 | CAL I FOR N I A G R OC E R
definition and standard of identity, a reasonable standard of quality, and reasonable standards of fill of the container for any food.” This regulatory requirement to establish the criteria, which must be met before a product may be labeled as a certain food, is difficult enough under the best of circumstances but in a world of innovation and migrating food vernacular it gets even more complicated. For example, in 2015, Hampton Creek challenged the mailability of the standard of identity when it produced a spread that was egg-free and branded it as “Just Mayo,” even though the product did not comply with the egg-based standard of identity for mayonnaise. FDA allowed Hampton Creek to keep the “Just Mayo” brand by making a few adjustments to the label, including those to help clarify that the product does not contain eggs. Mayonnaise was just the tip of the iceberg.
But recently, perhaps because the dairy aisle is racked with standard of identity cases, FDA announced they would be reviewing the issue and the definition of milk. FDA Commissioner Scott Gottlieb proclaimed in a recent public interview, about the existing criteria for milk, “An almond doesn’t lactate. I must confess.” A strict reading of the FDA’s milk standard of identity seems to lean on the lactating mammal side of the equation, but a review of “milk” in Webster’s dictionary reveals other options, the third in the series of milk definitions reads, any liquid resembling this (cow secretion) as the liquid from a coconut, the juice or sap of certain plants, various pharmaceutical preparations.” While the food retailer may think in terms of simply providing customers with whichever “milk” product they choose, there remains the question of how to also provide shoppers with guidance (and when they may request it, additional information) regarding nutritional equivalency and ingredient profiles, so they exactly know what they are purchasing and how it fits with their nutritional needs. Continued on page 24 ▶
GUEST COLUMN
Tariffs 101 and What they Mean for the Industry A N DY H A R I G S EN IOR DIR ECTOR , TAX, TR ADE AN D S US TAIN ABILIT Y, FO O D MARKETING INSTITUTE
The impact of the recent Trump administration tariffs has yet to be seen. It’s hard to turn on today’s news without hearing about the Trump administration’s decision to impose tariffs on a host of imported goods. These tariffs are often presented as black and white – either a necessary adjustment or taxes that will sink the economy. As taxes placed on imports from other countries, tariffs are not paid by the exporting country, but by the importer of record in the United States. Tariffs don’t directly cost foreign exporters money, but they do make goods more expensive to U.S. consumers, who often find these tax costs passed along as higher prices. The maximum tariffs the U.S. can place on imports is set by a host of multilateral
and regional trade agreements. That said, there are times when the U.S. can move beyond these limits as a means of addressing trade disputes. The Trump administration’s recent tariff announcements are part of two such disputes: one deals with issues of national security and the other with the misappropriation of intellectual property. Steel and Aluminum Tariffs – Section 232 Section 232 of the Trade Expansion Act of 1962 allows the president to order an investigation of the impact of imports on national security. President Trump used this authority to focus on steel and aluminum imports. The Commerce Department’s investigation found that these imports did raise national security concerns, and the president ordered imports of steel to face a 25 percent tariff and a 10 percent tariff on aluminum.
A handful of countries impacted by this decision have negotiated with the U.S. to avoid the tariffs. Most others – including Canada, the EU, China, India, Japan, and Russia – have not. Several impacted countries argue that the U.S. tariffs violate our commitments under a variety of trade agreements and have asserted their right to impose retaliatory tariffs. When you hear talk of a “trade war” in the press, it is this backand-forth process that raises the situation could get out of hand. China Tariffs – Section 301 A second trade dispute involves concerns that China is misappropriating U.S. intellectual property and proprietary technology. The Trump administration invoked Section 301 of the Trade Act of 1974, which allows the president to impose sanctions to halt these types of policies. Following an investigation confirming violations, he announced a first slice of tariffs aimed at $34 billion in Chinese goods, followed by another set valued at around $16 billion. Continued on page 24 ▶
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◀ Inside the Beltway, continued from page 22
Clearly, the dairy aisle is not the only food product category with definitional difficulties. The rise of “vegetarian or labgrown meat” is challenging notions of that which can legitimately be included in the meat case. While this issue raises standard of identity considerations and even involves an additional government agency – the U.S. Department of Agriculture – yet still begs the question of what consumers want and understand concerning food vocabulary. Is meat or milk or rice defined by its point of origin or the end-product? In this age of constant innovation and changing consumer needs, regulatory agencies such as the FDA and USDA will need all the help they can get to resolve these vocabulary and definition challenges.
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As we might imagine, traditional products will strongly advocate for standards and definitions to remain historically accurate and consistent. After all, isn’t that the point of having a standard and grounded definition?
The traditionalists will argue that new innovations should be called something entirely different if it doesn’t meet current criteria. Innovators, on the other hand, will argue they offer comparable alternatives that meet current consumer dietary demands. The food retailer, as the bridge linking the products and the consumers, will be asked to weigh in on these questions, particularly what the customer thinks and wants. FDA held a public hearing on July 26 and is soliciting comments by October 11. While the initial conversation seems to be focused on dairy products, the questions before all of us are far broader. What can and should we call products produced at store level like “riced cauliflower” or “zucchini noodles?” And where do we place some of these crossover products? FMI intends to be part of the conversation – sharing your input and that of your customers – with FDA, USDA and with elected officials on Capitol Hill. We welcome and solicit your input. ■
◀ Guest Column, continued from page 23
The Chinese government was extremely upset over the imposition of the tariffs and the targeting of industries central to the country’s industrial plans. After China declared it would take retaliatory action, President Trump responded by announcing an additional $200 billion in tariffs, covering virtually all food exports from China – fish and seafood, produce, etc. This set of tariffs will likely not go into place until the fall.
cans or foil packaging announced they will raise prices on consumers.
What Do the Tariffs Mean for Our Industry?
As these foreign markets accept less product, the domestic U.S. market becomes the buyer by last resort, driving prices down. For example, U.S. consumers could soon see pork prices fall simply because tariffs are limiting the ability to sell overseas.
Calculating the impact of tariffs is tricky. For instance, tariffs on steel and aluminum imports will increase the price of the industrial foil we use in our kitchens and some products like shelving construction materials. These costs will have to be made up somewhere in the supply chain. In addition, several food manufacturers dependent on aluminum 24 | CAL I FOR N I A G R OC E R
There is a flip side to these costs. The retaliatory tariffs imposed by our trading partners are strongly focused on U.S. agricultural products like soybeans, beef and pork – making these products more expensive for foreign consumers, in some cases prohibitively so. The economic fallout from this is already being felt in farm country.
Whether these lower prices balance out the increased costs created by U.S. tariffs remains to be seen. In the China 301 case – where Chinese exports to the U.S., like shrimp, strike directly at consumer’s
pocketbooks – it’s unlikely that domestic supply increases will balance out the tariff impact. Regardless of where they come down on the rationale behind these trade disputes, virtually everyone agrees that the best possible result is a negotiated solution that achieves our broader goals and eliminates these tariffs as soon as possible. So far, progress on both the steel and aluminum case and China 301 has been limited. Let’s hope this changes before economic damage starts to be done. We will work to keep you updated on progress, but do not hesitate to send any questions our way. Additionally, FMI led a group of farm-to-fork associations in the creation of a website, FeedingTheEconomy.com, to showcase our collective impact on the U.S. economy and exports by congressional districts. Feel free to utilize this information if it is helpful to you. ■
www.supervalu.com
WASHINGTON REPORT
Challenges Spur Innovation
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
Despite a number of new and existing challenges, independent grocers remain optimistic about their future. With the explosion of new formats and competitors in the marketplace, alongside some continued food deflation, 2017 was a challenging year for independent supermarket operators. However, as the true entrepreneurs of the industry, independent grocers are responding in innovative ways to these challenges, and according to the latest National Grocers Association benchmark survey, the majority (71.7 percent) said they were more optimistic about their business’ future. This study analyzes the financial and operational performance of independent supermarket operators within a fiscal year and provides an in-depth look at the economic, political, and competitive landscape in which these retailers operate. Survey respondents represent a wide array of companies throughout the United States and Canada: 41.1 percent of respondents were located in the Midwest; 23.3 percent in Canada, 15.1 percent in the South, 12.3 percent in the West, and 8.2 percent in the Northeast. While 2017 was a disappointing year for net profits, which decreased to 0.09 percent, same store sales were down -0.60 percent 26 | CAL I FOR N I A G R OC E R
compared to -1.62 percent in fiscal year 2016. Independent grocers rated competition, led by conventional supermarkets and supercenters, as their highest concern to growing sales and profitability. Dollar stores, hard discounters, and online retailers rounded out the top five perceived competitive threats. Although not listed in the top five, competition from restaurants/foodservice was once again an area of increasing concern. In addition to competition, the other issues with growing intensity of concern were staffing, hiring and retention; health care costs/compliance, the economy, and regulations. Additional insights from the report: • In a reversal from last year, singlestore independents were able to drive slightly higher margins than multi-store operators. • Profit leaders, the top 25th percentile in net profits, saw a greater sales contribution by fresh departments, including produce, meat and deli, at higher-than-average margins. • Labor and benefits remained the largest expenses, reaching a new record of 15.16 percent of sales.
• While center store remained the largest sales contributor, nearly four in 10 dollars were generated by perimeter departments, including produce, floral, meat, deli, bakery and seafood. • E-commerce is an area of great potential for independents, with 19.4 percent saying they offered click and collect services, 9.7 percent offering home delivery, and just 2.8 percent offering both home deliver and click and collect. Of those stores that did offer e-commerce services, the average online transaction size ($105.73) was much larger than the in-store transaction size ($26.93). There’s no doubt that the supermarket industry is rapidly changing, from technology to the competition from new formats and shifting consumer trends. However, independent grocers are nimble enough to quickly overcome obstacles and with strong ties to their communities, they know what consumers want and need. I share the same optimism about the future of independent grocers as the work diligently to differentiate themselves in a fiercely competitive marketplace to become shoppers’ stores of choice. For more information on how to download this report, please visit: www.nationalgrocers.org/research ■
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CATEGORY GROWTH SOLUTIONS
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Trusted iconic brands and expert category management deliver real solutions for sustainable growth.
By:
Julie Williamson, Ph.D., Chief Growth Enabler, Karrikins Group Peter Sheahan, Founder and CEO, Karrikins Group
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Growth: The Intersection of Instinct and Data Quick, consider these four questions:
1 2 3 4
How many SKU’s are typically on your shelves? Which are the top and bottom 10 percent in profitability at the moment? What shopping experience will your customers want and need from you tomorrow? What are the winning lottery numbers for next week?
All these questions have answers…some in time for them to be useful, others not so much so. Given that none of us are likely to win the lottery next week, we’d better be pretty good at answering the first three, and we must be able to do it with both data and instinct if we want to move quickly and confidently in a constantly disrupted world. You could likely answer the first two off the top of your head within a reasonable margin of error, and you have systems that could produce a more exact report within a short timeframe. The third question is where things get tricky. One thing we know for sure is that today’s digital-first consumers are showing us they expect an integrated digital experience in all types of settings; including, banks, clothing stores and groceries.
Amazon’s recent introduction of an integrated Prime experience in Whole Foods is just one early example of how this new orientation will change the grocery industry. Exactly how that can and should look isn’t found in data and analytics – it’s found in how you take the data you have and apply it through the lens of your own instincts, observations and beliefs. Sustained, robust growth is found at the intersection of data and instinct, where the successes of the past meet the potential of the future. This know-how comes from understanding the potential of in-depth analytics and access to ever better predictive models of customer behavior. Continued on page 32 ▶
“ Sustained growth is found at the intersection of data and instinct, where your own experiences and successes meet the potential of the future. ”
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◀ Continued from page 31
It also comes from tapping into your own experiences and observations and using them to inform the questions you ask and how you interpret the data. And, it requires being willing to challenge yourself in ways that advance your interpretations to be appropriate for today’s realities – you have to tell yourself the truth about your own ability to understand, connect, and evaluate today’s consumers. In our book MATTER, we looked at the habits, behaviors, and beliefs of leaders who find and work from the intersection of data and instinct, which we call the “Edge of Disruption," or the EoD.
“ You must put your customer (member) at the center of every decision, set a bold ambition, take intelligent risks, and move from agreement to alignment to action. ” When we turned our attention to BlueShore Financial, we got a firsthand view of reimagining the customer experience from the EoD. As a credit union, BlueShore served a traditional market in a traditional way – bland colors, counters, roped off lines – you get the picture. In 2006, BlueShore took a huge leap forward and started converting their branches into “financial spas.” There were no more boring and routine interactions, instead members were greeted with hot towels, concierges, and beverage service in the midst of “West Coast Zen” décor. When we caught up with the CEO, Chris Catliff, in 2015, we got a sense of just how drastic this conversion was, especially given the stodgy history of the credit union and banking industry. BlueShore had to move to a mindset where the member (or customer) was at the center of every decision. They had to set a bold ambition to change the most basic assumptions both members and employees had about what the branch experience should and could be. They had to take intelligent risks to pilot, tweak and continuously adapt to a changing understanding of the member. And, across all areas of the business (including the board), they had to be willing to move from merely agreeing that the experience had to be “better” or “different” to fully aligning their resources, priorities, people, and budgets towards building something that was fully differentiated. There was no data that instructed them to build a “financial spa,” but there was good data that supported the idea that members would respond to a different experience. They had to bring “data + instinct” into the process to build a differentiator that helped them create sustainable growth for the organization.
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How are you thinking about reimagining the customer experience in your stores? You face different challenges in this time and industry than BlueShore did in 2006, but their dramatic shift and success can inform your thinking. To better assess if you are operating on the EoD, ask yourself the tough questions about your organization and yourself as a leader: • Are you honestly putting the customer at the center of every decision you make when you think about the future of your stores? • How does the digital-first disruption impact your ambition to change? What do you know about how customers are experiencing other shopping environments? • Are you asking optimistic questions about how you can accelerate towards an integrated future, or are you trying to slow down the future? • How are you combining observations and instincts with data? • How are you converting those insights into action?
As we did the research for MATTER, we found there were three ways of working that leaders routinely engaged in that fed their need for data and honed their instincts. As a result, they lead their companies on growth journeys that motivate their employees, engage their customers, and satisfy their investors, and they do it by continually refreshing their sources of information and pushing into higher ambitions. These three ways of working are simple to understand, but they are not easy to implement.
Elevated Perspective The first part of finding and working from your EoD is to commit to elevating your perspective. Too often, we get caught up in the day to day of working IN the business, and we forget about working ON the business.
An elevated perspective is found when leaders actively make the time to work on the business and do it with an optimistic view of their ability to move through disruption. This leads to taking intelligent risks, being willing to pilot new ways of engaging customers, adapting quickly and confidently, and having a bold ambition of what is possible. To elevate your perspective, you must get out of the day-to-day of the business and learn about what is happening in other industries, what customers are learning about how to shop and engage in other modalities, and how you can leverage learnings and tools in your own stores. Too often, industries become insular and have an over-inflated view of why they are “special.”
This is where it all gets real – if leaders don’t change their decisions about budgets, people, resources, priorities, and operational processes, it is not possible to transform the organization. Your perspective and relationships should inform the impact you want to have for your customers, employees, shareholders, and communities. The ability to balance creating value across all of these important stakeholders will determine how well you can truly change your organization and the value you create.
Customers don’t care about a lot of why we think we are special – they care about getting the quality, speed, and effectiveness that they get elsewhere in their grocery store of choice, be that online, through a service, or in person. You can’t outsource your own perspective – you have to make the time (and make the time for your senior team) to observe, understand, and integrate the disruptions that are happening around you into your decision-making processes. Data isn’t the answer – it is an input in the decision-making process.
Elevated Relationships Second, it is critical to invest in elevating your relationships. It is shocking to us that we often talk with executives who have literally not met anyone new in weeks, months, even years. And the relationships they do have are fairly routine and predictable. This personal cocoon extends out into the organization, which often hasn’t shaken up relationships with suppliers, distributors, employees, investors, or most importantly, customers, in decades. There is a fear of upsetting the apple cart and negatively impacting short-term results in ways that feel disastrous, so a status quo is maintained. This holds the organization back from a powerful growth EoD. If you want to really elevate your relationships, try setting a bold ambition for a new customer experience and bringing your suppliers and customers into the conversation to co-create it with you. It requires different skills and abilities from your team – you will need people who can create the type of environment and experience where that type of relationship can be effective. Done well, it just might result in an exponential change instead of an incremental change. BlueShore invented the financial spa – what will you create?
Elevated Impact The third and perhaps most important way of working is leaning into elevating your impact. The leaders we profiled didn’t hold back from bold ambition; they pushed themselves and their teams to not just passively agree with a new direction. They fiercely held to aligning decision-making, priorities, attitudes, and commitments across the most senior leaders in the organization.
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“ Organizations don’t transform, leaders do. ” Develop Your Instinct We believe that organizations don’t transform, leaders do. If you are ready to reimagine your customer experience, don’t just look for data about how it has been done. Develop your instinct by elevating your perspective, elevating your relationships, and commit to elevating your impact. The results will be remarkable. ■
Peter Sheahan is a keynote speaker at this year’s CGA Strategic Conference
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Serving Up the Freshest Eggs for Generations. NuCal Foods Family Farms Producing California’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.
ADVERTORIAL
FAMILY FARMERS THRIVE
AT NUCAL FOODS AND NORCO RANCH
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Ernie Gemperle didn’t always have it easy. Born in Switzerland, the late patriarch of Gemperle Family Farms arrived in the U.S. with just $12 in his pocket. He couldn’t have known the egg farm he founded in 1951 would grow to become one of California’s largest.
Safety, quality, and customer service is the foundation that drives NuCal Foods and Norco Ranch:
“When a family farm has been thriving for decades, you know the values and practices are sound,” said Gemperle Family Farms President Steve Gemperle, a second-generation farmer. “The Gemperle family has always believed in providing superior care for our hens, being good stewards of the land, and giving back to the communities that surround and support us.”
Most of our eggs are delivered within a day or two of lay and purchased by people who live within 100 miles of the farm.
That tradition of innovation continued in the 1990s when Gemperle Family Farms became a leader in the industry by introducing cagefree and organic eggs.
Local
Food Safety & Quality Assurance All our farms have comprehensive food safety and quality assurance programs and are continually monitored by the USDA and the most trusted third-party organizations.
Animal Welfare
This incredible story is just one of many, as our multi-generational, family-owned farms each have a unique and interesting history, said Jim Van Gorkom, Senior Vice President of Sales and Marketing at NuCal Foods.
All our hens are cared for under a strict third-party-audited animal welfare program in state-of-the-art, clean, safe environments and provided a nutritious diet and clean water so they lay the most nutritious eggs for California consumers.
“Farming isn’t a job, it’s a way of life,” Van Gorkom said. “That level of commitment to protecting and preserving the land, the animals, and the community is demonstrated by all of the multi-generational farms in the NuCal Foods and Norco Ranch family and ensures nutritious, wholesome eggs are delivered from California farms to California consumers every day.”
For more information about our commitment to providing fresh, nutritious eggs from California farms to California consumers, please go to: Northern California www.nucalfoods.com; Southern California www.norcorancheggs.com
CAL I FO RNIA GRO CER | 35
!
OUTSIDE THE BOX N EW RETAIL PERS PECTIV ES
Gen-Why? Still confused about generational buying habits? YouGov, a U.K.-based public opinion and data company, found in a recent survey that Gen-Z shoppers, 18- to 24-year-olds, are focusing less on being entertained or browsing online first than their Millennial predecessors and more on quick, succinct real-time experiences. About 59 percent want a dedicated checkout for click-and-collect and near half are frustrated by poor mobile phone signals in-store. Fifty-five percent said contactless payments are the most valuable in-store technology and 86 percent said they were most frustrated when a website says an item is in stock but find it’s not available in the store. iStock
Red China If you’re looking for a way to expand your online base, take a page from WeChat, China’s most popular online messaging service. WeChat has over one iStock billion monthly users due to the popularity of its digital red packets. Giving red packets or red envelopes with cash are a tradition during the Lunar New Year. About 80 percent of mainland Chinese residents plan to send WeChat digital packets this year.
WHO’S NEXT?
STRATEGIC
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ALLIANCE
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Tesco and Carrefour, two global retail powerhouses, are shaking up supplier relationships by banding together for the joint purchasing of private label products. The company said it will enable them to lower prices and offer greater variety and higher-quality products to customers. 36 | CAL I FOR N I A G R OC E R
With all the retailers shutting their doors, how much vacant space is out there? The closure of Toys “R” Us has left about 28.6 million square feet of retail real estate up for grabs in the U.S. This alone represents about 21 percent of store closures so far this year. Numerous retailers are staking their claim including discount, health and wellness, home improvement and furniture stores, not to mention specialty grocers and Dollar General.
OUTSIDE THE BOX
Facing Facts FREIGHT FOLLIES If you’re waiting for overseas shipments you may be waiting a bit longer and paying more. A.P. Moeller-Maersk, the world’s biggest cargo carrier carrying about 18 percent of all containers, said earnings are down due to rising fuel prices, freight rates that are about half of breakeven levels and a looming trade war set off by increased tariffs. iStock iStock
EXPANDING AI Approximately 70 percent of companies surveyed by Coresight Research are already using artificial intelligence for supply chain and customer-facing operations including inventory management, demand forecasting, and automatic replenishment. However, many more are also using it for in-store and e-commerce functions like personalization, product recommendations, price optimization and promotions.
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Th e R i g h t S t uff If you’re thinking of expanding, you might want to take advantage of cross-shopping and park a new store next to off-price retailers like Ross Stores, Burlington and TJX stores including T.J. Maxx and Marshall’s which are on the fast track in sales, adding an estimated $13 billion in additional revenues between now and 2021.
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Despite the recent negative publicity about Facebook, household viewing of the company’s video and alternative content like live streaming, user-generated content and other sources including SnapChat and YouTube, is up to two hours per week on average.
T HE L A ST M I L E iStock
Chinese online seller Jd.com is expanding efforts to reduce the environmental impact of customer deliveries with a new fleet of hydrogen-powered delivery trucks in Shanghai. The tanks only take three minutes to refill and trucks with as much as 3.5 tons of cargo can travel about 186 miles on a single tank. Previously the company rolled out 50 solar-powered delivery vehicles in Beijing, which emit only purified water.
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An
Irrational Industry By Len Lewis
Consumers can be an irrational bunch – continually searching for the next significant trend in food, clinging to pre-conceived notions about certain foods, and often not knowing what they want. The question is how to deal with it! “The fact is that food is an irrational industry,” says Mike Lee, Co-Founder of Alpha Food Labs, a food product design and innovation studio, and the Future Market. “As much as we’d like to think people make food choices on a rational basis, that’s not the case. You have to embrace the irrational and emotional side of people if you want to have longterm success.” Lee, whose background makes him something of a cross between a tech guy and a self-trained chef, has been working in product development design and innovation for the past 12 years, inside and outside the food industry. “A lot of innovation experience comes from tech,” he says. “And while I was working in that sector, we started Studiofeast, an underground supper club group that grew to a few thousand people in New York City where we could do some exciting dining experiences.”
Doing tech by day and dinners at night really fused together in 2013 when Lee joined Chobani, where he was able to focus on food design. “We had been doing it on our own with dinners and creating new dishes. But it was in CPG where everything came together,” he recalls. Asked if the industry has progressed over the past few years in terms of innovation, Lee replies: “I think it has. We’re just seeing the beginning of the awakening. So much is happening. It’s just not distributed evenly among categories. We’re seeing an amazing amount of innovation in the area of plant-based protein, as well as in high potency functional ingredients like medicinal mushrooms and many others,” he says, adding that over the past few years the industry has also realized it needs to step up its game in innovation. Continued on page 42 ▶
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◀ Continued from page 41
Innovation is coming from all sides of the business, but small firms and startups seem to have an edge. “Small is more innovative right now because most don’t have a legacy to worry about, so they’re creating everything new,” Lee notes. “However, all the big firms now have venture groups and are partnering or acquiring small and mid-sized companies. That’s a big shift in business for them.” At the same time, according to Lee, these companies are recommitting their internal efforts and resources to do home-grown innovation as well. The biggest issue for large firms is that they have to manage the legacy brands and the cash cows, and hit quarterly targets. “They are investing for the five-year timeline,” he says. “It’s a unique challenge when you have to manage multiple timelines for new products.”
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“There’s been so much flavor innovation.
Companies are looking at plants we haven’t used in the past. It’s creating some exciting new opportunities that will have ripple effects in the industry.”
The result is that these firms are themselves becoming “futurists” and, as Lee puts it: “trying to skate where the puck is headed. The consumer and retail landscape is changing at an ever-quickening pace, so agility and responsiveness are essential as we go forward.” Over the past five years, the most significant changes have taken place in plant-based, functional and convenience foods, according to Lee. “Those are three giant pillars,” he says. “Beyond that, it’s hard to put your finger on one dominant trend because society’s eater base has become so fragmented.
“It’s hard to have a mass brand that sweeps the nation. It would even be hard to invent Coca-Cola right now and have the same success because eating has become so complex and nuanced and consumers have broken down into so many eating tribes. This is why the small players are winning. They’ve been able to identify a niche more rapidly and able to build up the user base.” In terms of specific products, the plant-based ones are where much of the innovation is taking place, says Lee. “I’m referring to plant-based proteins in categories like dairy and meat,” he shares. “The gap in taste between plant-based and
“There’s so much amazing complexity within the mushroom kingdom and so much potency they can offer,” he says. “And the approach to marketing mushrooms has become very lifestyle and culture-oriented – you might say modern and trendy.”
iStock
animal protein is slowly closing. There’s been so much flavor innovation. Companies are looking at plants we haven’t used in the past. It’s creating some exciting new opportunities that will have ripple effects in the industry.”
“This includes products that help with the circulatory or immune system or with mental acuity,” he says. “They are not designed to make you full or satisfied. They can be foodbased medicines.”
Functional foods, something the industry has been discussing for decades, is progressing beyond just general nutritional benefits.
One of the most interesting developments is in medicinal mushrooms, Lee says.
Lee’s background in both restaurant foodservice and the CPG industry has given him a unique perspective. But the common denominator for both segments and the retail industry is how fast innovations can be brought to market. The question then becomes, who is going to drive innovation in the future? “Restaurants, retailers and CPG companies all have different timelines when it comes to how fast they can bring things to market and replicate it,” Lee says. “But, restaurants have an unfair advantage because they can innovate more quickly. You can literally talk about a dish at 3 p.m. and have it on the menu that night to see if it will work.” Continued on page 44 ▶
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◀ Continued from page 43
With CPG companies though, it can take months to get feedback,” Lee says. “So I always implore them (CPG companies) to find a way to get into a foodservice context – whether it’s a pop-up restaurant, or working with a foodservice team to accelerate the prototyping and learning process,” he suggests. “Things, like booking time in the factory, or doing package design, can come later. But doing something in a foodservice context can get you more atbats before you have to invest the time and resources to do something bigger. “ However, Lee says the biggest issue blocking or slowing innovation is the required culture shift. “It doesn’t happen overnight,” he warns. “You can figure out what strategies are right for you, but you have to develop a mindset that enables you to embrace change. This may put you in the position of disrupting some of your cash cows. It’s better to do it yourself then have someone else do it for you.” As an example, Lee says to look no further than Apple, one of the most innovative companies in the world. “Every year everyone complains that Apple makes last year’s iPhone obsolete,” he says. “But no one can accuse them of not innovating. They’re just not afraid to make their last product obsolete. They always want to improve, and that philosophy doesn’t always exist in the food industry.” Innovation and design are what the Studiofeast concept was all about. Producing dinner events are still part of the Future Market and Alpha Food Labs playbook, according to Lee. “Dinners enable us to show people what the future of food looks like in a tangible way,” he says. “We didn’t have to invest in a new restaurant or start a new brand. These renegade dinners gave us immediate access to an audience for which we could experiment with new things and challenge preconceived notions about food. It put us in touch with what makes people tick when they’re eating and how to design foods around that.”
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“One of the biggest insights driving changes in food is that
everyone’s food choices are tied to their identity.”
Lee said he partnered with a number of companies at the last dinner about the future of protein including, plant-based, sea-based, and even insect-based protein. “It’s a good opportunity for brands to get a tangible touchpoint with consumers,” he adds. “Your job as a new product developer is to de-risk the innovation process. The best way to do that is to find sandboxes where you can try out products,” he says. “The point is not to avoid failure. The point is to control the damage that failure might have on your company. You have to embrace failure, or you’re not going to innovate hard enough. So starting up an innovation lab, a pilot kitchen, or a foodservice café is a great place to learn what works.” But are consumers looking for innovation and to what degree? “One of the biggest insights driving changes in food is that everyone’s food choices are tied to their identity,” Lee says. “In fact, food has become an extension of their identity. There are so many unique individuals out there that want food in a slightly different way. “Because everyone is digitally networked, they can find their own tribes online,” Lee says. “For instance, if you’re into a Paleo diet, you can find similar people online to talk about that way of living and order any products you want.”
Even in health, the new trend is about personalized nutrition. “Health is not a blanket statement,” says Lee. “Some people can eat 12 slices of bacon with butter for breakfast and be okay. Most can’t. It’s a matter of people doing a better job understanding their health and finding things that suit them. Overall, the era of onesize fits all foods is over.” This means consumers are the ones driving innovation. “We’ve become a demand-driven industry,” Lee suggests. “Gone are the days when a company could dictate what a factory would produce, put an ad campaign behind it and expect consumers to accept it. Now it’s a matter of how well brands listen to consumers and predict their needs.” Finally, there’s a need for the industry to address the evolution of sustainability. “By and large the movement around sustainable foods is altruistic,” Lee says. “That’s fine, and people will support it, but to make it something enduring, you have to find the intersection of sustainability and selfish need. People choose food for what it brings to them. “You have to equate sustainable food with more delicious food,” he concludes. “We have to strive for that if we want to keep the trend growing.” ■
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WHAT’S YOUR
STORY?
How to make PR moments last through storytelling.
By Kindra Hall
It was Thursday, September 7, 2017, and the people of Florida were bracing themselves as Hurricane Irma barreled toward the coast. A local news station was on site at an Orlando big-brand retail store as people rushed to claim essential supplies. There, luck was on the side of Ramon Santiago who was able to snag one of the cherished few generators left in the store. As he made his way to check out, Santiago saw a woman crying. Pam Brekke had been hoping to purchase a generator for her father to power his oxygen. She was next in line, but it was too late. The store was out of generators and Pam was out of options. Seeing her tears, Ramon insisted she take the one he’d been about to purchase. Pam was overwhelmed with gratitude. Later that afternoon, when another generator became available, a store manager thought of Santiago’s kindness and, in the ultimate fairy-tale ending, provided him with a generator free of charge.
The picture of Brekke and Santiago embracing in the middle of the store quickly gained steam online, illustrating the power of kindness in the middle of disaster and for a few moments, was a bright spot in an otherwise stormy week. Frontline stories like these happen every day in your establishments. These stories aren’t about generators of course, but they are stories of good people doing good things for other people; employees going out of their way to help a customer or a co-worker, or a random act of kindness between two customers is witnessed by a manager and rewarded. Companies don’t have to wait for a hurricane or a news crew to put these stories to use. Even small stories can be significant, lasting moments for a company if cultivated and used correctly.
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CAL I FO RNIA GRO CER | 49
“
It's not the magnitude of the story that matters, it's the decision to tell it. – Kindra Hall
” iStock
◀ Continued from page 49
Find the Stories Had a news crew not been there that day, we likely would never have heard about Ramon Santiago and the store manager’s decision to give him a free generator. The company would have missed out on a tremendous public relations opportunity. Subsequently, thousands of employees across the country would have missed that feeling of pride in working for a company that does the right thing. Gathering frontline, human-interest stories in a timely fashion can be challenging, but it is critical. Companies of all sizes should set up a system that allows frontline teams to tell these stories when they see them in action.
“
at our local grocery store. I was, of course, in a rush because, let’s face it, I’m always in a rush. This time, I had forgotten that I was the one in charge of bringing the meat and cheese to an event at my kids’ school and the lastminute trip to the store meant I was going to be late. I’ll admit, I didn’t talk to anyone in the store and barely looked up as I hurriedly put my items on the counter and the clerk greeted me. I smiled a strained, hurried smile as I plugged my loyalty number into the keypad; I always use my husband’s phone number because, in our house, he’s usually the one who does the grocery shopping.
When your employees are talking about the great things their co-workers are doing, consumers will hear it, too.
Start weekly meetings with frontline stories. Create an email address where supervisors can send stories. Secondarily, identify a place to hold these stories, such as a system-wide file, so they can be reaccessed. Whatever system works best for your business, it should make it convenient for employees to share stories quickly and efficiently. Lastly, don’t be afraid to reach out to your customers and ask for their stories. For example, I was recently in the checkout line
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”
I pushed a series of buttons, checked the total and was about to grab my bags and leave when someone stopped me – the clerk. I’m not sure if she noticed my husband’s name on the computer screen, which even that would be impressive, but suddenly a look of recognition crossed her face. “Oh!” she said. “You have the most beautiful daughter. She looks just like you! And she’s always so sweet when she comes through the line with your husband.” She smiled and genuinely wished me a wonderful day.
I stood there shocked for a second as my frantic pace slowed and, for the first time in a while, I smiled a real smile. The kind of smile that only comes from actual human connection. The woman at the register made my day that afternoon – and it’s a story I’d be happy to share with a team like yours; to help remind them of the beautiful moments they can create in your customers’ lives.
Work From the Inside Out Whether you’re putting a story on social media or telling one in employee trainings, the clear message of the story should be: This is who we are, this is what we do. This starts by telling stories within the walls of your company. Tell the top executives, all the way down to the 17-year-old cashier. In this way, your values will radiate from the core of your company. Word of mouth is a powerful tool. When your employees are talking about the great things their co-workers are doing, consumers will hear it, too.
Tell Stories Without Any Hope of Return Your first inclination might be to use a human-interest story to sell products or boost your company’s image. Though a story certainly can do that, it should not be your first objective.
Tell these stories with the primary goal of authentically sharing and illustrating what matters to the company and connecting on a human level with customers, employees, and other stakeholders.
So what was the power of the generator story? Am I more likely to shop there rather than other supply stores? Maybe. Maybe not. What I will remember is that bright spot in the midst of a sad and scary news cycle.
Leveraging the power of these humaninterest stories is possible if approached from a humble place. The company isn’t the hero, the people are. For example, if you decide to tell the story in a video, the video should not be about the company. The company shouldn’t even be mentioned until the end: no flashy company signs, no corporate talking heads, and employees shouldn’t wear clothing with the company logo.
Today’s newsfeeds line tomorrow’s hamster cages – but they don’t have to. Companies that seek out frontline stories and relentlessly tell them can create a lasting legacy to weather any storm. ■
Instead, the video should focus on the unfolding events, the people involved, and their emotions. The company is merely a fortunate bystander, happy to have good people working for and doing business with them.
Editor’s Note: Kindra Hall is an internationally recognized storytelling keynote speaker. A former vice president of sales for a multimillion dollar enterprise, she now teaches others how to build better relationships, become better leaders and increase revenue by maximizing their untold stories.
Kindra Hall is the Keynote speaker at this year’s CGA Strategic Conference.
CAL I FO RNIA GRO CER | 51
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CREATING
an Engagement
CULTURE “Good for you, good for your employees, and good for your customers!” by Christy Largent
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It was his first day on the job. His excitement combined with a tinge of trepidation as he anticipated all the new adventures that would be part of this new opportunity.
On that first day, he arrived early to meet his new boss, and you could tell he was a bit overeager, intently nodding as he listened to her explain his responsibilities and her expectations. He was alert as he was walked around the office and made every effort to remember everyone’s name and what they did. At lunch, he was friendly and polite as he made conversation with his coworkers, curious about their life without being too nosey.
His job became sterile, and he started wondering if this really was what he wanted to be doing. His boss, who he thought was so awesome just a few short months earlier, had shown her true colors. Let’s just say, he decided her bright red power suit should have given him a clue she wasn’t afraid to make sure everyone knew who was in charge. Everything combined, it made for an unpleasant environment, and he wasn’t far from seeking a “new opportunity.”
And when he actually started doing what he had been hired to do, he worked with an energy and focus that allowed him to catch on quickly and begin to excel.
What changed? What happened in this story to turn him from excited, engaged and forward thinking, to frustrated, fed up and fuming?
As the months passed, things changed. He learned everyone’s name along with probably a bit too much information about some of them. He had observed an alarming habit among his team of complaining, then just sucking it up and mindlessly doing the work, as none of the upper management seemed to really care about what the team was saying.
It would be easy to blame it on the “millennial funk” that seems so prevalent these days. But looking more in-depth into engaging company cultures, I have found that all the best companies do a few things really well. I call it the “Engagement Culture.”
The five most common elements of a vibrant Engagement Culture include:
1
Developing the foundation of an Opportunity Mindset
What is an Opportunity Mindset? I’m glad you asked. It’s a mindset that is generally set towards the positive. This mindset sees problems as opportunities. It looks for the good and expects the best. A culture with this mindset encourages its employees to roll with the punches while getting creative. Part of instilling an Opportunity Mindset is to reward positive behavior. Once when I was speaking in Bentonville, Ark a the plant floor supervisors from Little Debbie’s raised her hand. “Christy,” she said in her charming southern accent, “Rather than looking for ways my team is messing up, I go around the factory floor and try to catch them doing something right!”
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For example, rather than saying, “There’s no way that project can be finished in time. You’re not considering our workload when you set an impossible time frame.” Focus on the problem: “I’m concerned this project will not meet the deadline due to our heavy current workload. I’d like to discuss your time frame.”
No. 1 Action Steps: ✓ Make a point of recognizing the good. ✓ Always ask for a positive solution whenever someone brings you something negative.
✓ Teach your team to “reframe” problems from the negative to the positive. Instead of saying, “We can’t do that,” ask, “What can we do?” or say, “What we can do is…”
That’s the Opportunity Mindset in action. Her employees appreciated knowing their supervisor was looking for ways to praise them rather than just discipline them. I love that! Being intentional about setting a foundation with an Opportunity Mindset creates a safe environment to learn and grow, both critical components of a thriving organization.
2
Provide a strategy and plan for purposeful, productive communication.
Nothing is more discouraging than to not feel heard. This morning as I was dropping my sixth grader off at school, I casually mentioned that I wasn’t signing him up for the tennis team for the next few months. Instead, I wanted him to have plenty of time to adjust to his new school. Well, he just blew up! He almost started crying as he said to me, “I love tennis, I want to keep playing tennis, I can’t believe you’re not listening to what I want…you’re not hearing me.” I think in our heart of hearts when we don’t feel heard at work, inside we are having the same reaction as my little Graham. “You’re not hearing me!” is the cry of our team members when we don’t create open opportunities for honest communication.
No. 2 Action Steps: ✓ Set regular (short) meetings where agendas, goals and
expectations are discussed. Having a regularly scheduled time for open discussion and communication gives everyone an opportunity to get on the same page.
✓ Ensure that at the meeting, new ideas are allowed to be heard without being shot down by the resident “Nelly Negative.”
✓ Set a time where feedback can be given. When providing
feedback, focus on the problem, not the person. Often our judgments will slip in, and instead of being clearly focused on the issue, we turn it on the person.
Can you hear the difference? See how a judgment slipped in the first time? “You’re not considering our workload,” is a judgment. Instead, openly express your concern, and then state your preferences. No judgment, just open discussion.
3
There is an appreciation for the different strengths and personalities each member brings to the team.
When I first started working after college, I was employed in a highend interior design center. Back then, we ordered products for our clients on a written order sheet that was given to an expeditor, who actually ordered the items. My expeditor was named Valerie, and she was a meticulous “Detailed Danielle.” Valerie drove me absolutely insane… and of course, I’m sure I drove her insane too! I wish our boss had taken the time (had she known) to help us understand each other. Rather than being irritated by the differences, engaged teams take the opportunity to celebrate the differences and let everyone do what they do best for the benefit of the organization. iStock
No. 3 Action Steps: ✓ There are many tools available to make sure your team
understands and appreciates everyone’s strengths and differences. Including this information as part of your culture will pay dividends time after time.
4
Focus on the client experience.
If you’ve been to Disneyland, you’ve tasted what happens when a company is laser-focused on creating an unforgettable experience for the end user. I know what you’re thinking…“But that’s Disneyland, of course they are focused on giving their guests the Disney magic.” But seriously, if anything, their success could be an excuse for resting on their laurels. Somehow, they keep the “main thing” the main thing, stay focused on how the customer (guest) will be able to experience that Disney magic every time. Continued on page 58 ▶
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BRINGING HEALTH THROUGH FOOD TO AS MANY PEOPLE AS POSSIBLE. That’s our mission, plain and simple. We deliver better-for-you and great-tasting food and beverage options to appeal to consumers’ diverse preferences. Danone North America offers a rich portfolio of dairy, plant-based products and coffee creamers to better serve your needs and fuel your success in the fastest growth areas of retail. And now, we’re proud to be the largest Certified B Corp™ in the world, meeting high standards of social and environmental performance and transparency.
◀ Continued from page 56 iStock
No. 5 Action Steps: ✓ Pick a charity and do a fundraiser for them ✓ Do matching grants for charitable giving from your employees.
✓ Invite your team to find a need in your community and design a way to contribute together.
No. 4 Action Steps: ✓ Starting with first impressions, make sure the physical,
visual and other sensory sensations are setting the tone for what to expect.
✓ Moving on to your interactions, are your systems designed for your ease, or your customers? Sometimes with success, we forget that it’s really all about the customer.
Taking time to ensure you’re focused on your customer’s experience will help everyone keep the “main thing”, the main thing.
5
Ensure your culture is purpose-driven (especially important with today’s millennial and Gen. Z generations).
So how’s your positive engagement? If it’s not where you want it to be, the good news is that you can generate positive engagement by implementing these ideas. We all want to love our job and enjoy our coworkers. We want a positive environment where we feel valued, heard and a vital part of a team. You can create this for yourself and your organization. With a little effort, you’ll see tremendous results as you commit to living out your own Engagement Culture. Editor’s Note: Christy Largent is a professional speaker specializing in employee engagement and positivity. She also has a podcast, “Encouraging Words for Working Moms” and until recently, was the host of the PBS-TV show, “The Forum.” Christy lives in the Dallas area with her husband and two school-aged children. When she’s not speaking, you will find her practicing her stand-up comedy skills while sitting down playing Uber driver for her kids.
Dutch Bros. Coffee is a company found throughout the West. It’s known for hiring young, fun and energetic people. Many of us would see that as a recipe for disaster, but it has capitalized on youth and their penchant for fun and excitement. It’s not just coffee being sold. They are giving joy to everyone they serve, and it’s a purpose much more significant than a cinnamon dolce or that double chocolate mocha. It’s actually an opportunity to change someone’s life! And if you ask around a community with a Dutch Bros, you’ll find testimonies of people, who felt when they stopped for a drink, they got the encouragement they needed to keep on keeping on. Dutch Bros is also known for giving back to its communities. Each employee knows about the thousands and thousands of dollars donated by the company each year. They participate in the special non-profit days where every sale means another donation to a local cause. They work long hours with never-ending lines. And they do it all because they love being part of a purpose bigger than themselves. And I can testify as a middle-aged (ahem) lady, that when I get served my americano by a young, cute, happy and interested-in-me teenager, I leave with a smile on my face and a song in my heart. (That’s sooo corny, but it’s true!)
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Christy Largent is the keynote speaker at the 2018 CGA Strategic Conference Independent Grocers Forum.
CAL I FO RNIA GRO CER | 59
Purina trademarks are owned by Société des Produits Nestlé S.A. Any other marks are property of their respective owners. Printed in USA.
W H I T E M E AT C H I C K E N P R I M AV E R A PAT É
S H R E D D E D T U N A FA R E
W H I T E M E AT C H I C K E N F LO R E N T I N E
Discover expertly prepared, inspired combinations for flavorful recipes your cat will love.
As Pet Food Market Experiences Double Digit Growth, Wet Cat Is Where It’s At For Retailers. The 27 million households that buy wet cat food are valuable shoppers with intense connections to their pets. There are a number of reasons why the 94 million cats in U.S. households are finding more wet food in their dishes these days. The most basic reason is preference. Sixty-nine percent of pet parents feed wet food simply because it’s very wellliked by their cats, according to the Cat Food Regimen 2015. Others choose to feed wet food because they know that the moisture helps keep their cats well hydrated. The desire to offer their cat variety is another purchase driver. In the wild, cats source a wide range of prey, so pet parents are feeding those natural cravings by offering a range of textures and tastes found in wet cat food. In fact, 71 percent of pet parents report buying wet cat food due to variety (Cat Food Regimen 2015). Ultimately, buying wet cat food helps pet parents meet the needs of their cats, which can lead to stronger bonds with their finicky companions. The same Cat Food Regimen report found that fifty-two percent feed their cats wet food because it makes them feel like a good pet parent. So why should retailers care? Because wet cat shoppers are a valuable segment. The 27.2 million U.S. households that purchase wet cat food also make more shopping trips and spend more per household than other cat shoppers. According to Nielsen Homescan Panel Data (52 weeks ending 12/30/17), wet cat households make 12.6 trips per year and spend an average of $105 on wet cat food over the course of the year. That’s compared to 6.5 trips and $82 spent per year by dry cat shoppers, 5.9 trips and $69 spent
per year by litter buyers, and 5.4 trips and $28 spent per year by cat treat purchasers. Much like the animals they care for, these shoppers often have distinct preferences. While variety of inventory is their top consideration when choosing a retailer, different shoppers define “variety” differently. The Cat Food Regimen study indicates that shoppers look for a range in pricing or packaging, i.e., bigger cans to feed multiple cats, while others look for variety in flavors, protein and product forms. Getting the product mix right for these shoppers isn’t just important, it’s critical because wet cat shoppers will simply leave if you don’t satisfy their needs. In fact, one in five wet cat buyers will delay their purchase rather than settle for a substitute when they come across an out of stock item, according to Walk Rates Research, 2018. That’s the highest walk rate among all cat shoppers.
The good news is that the trends favor growth in wet cat food. There’s potential to expand consumption among existing category users. In fact, 46 percent of current wet cat food shoppers say they wish they could feed their cat wet food more often (Cat Food Regimen 2015). Demographic trends also favor the segment. Millennials (who are now the largest pet-owning generation) are choosing cats more than generations past, and they’re showing a proclivity for owning multiples as well. According to Pet Attitude Tracker (Q1, 2016), 35 percent of Millennials said they plan to acquire another pet within the next 12 months. Both of these factors are good signs for continued growth in the wet cat food segment. Stocking the right product assortment, featuring wet cat in eye-catching displays and offering regular promotions will be the critical factors in which retailers succeed at capturing this valuable shopper.
Sponsored Content
EFFECTIVE INVENTORY
MANAGEMENT by Larry Miller
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Forget about the pending “Retail Ice Age.” Many companies are growing same-store sales, but for those with decades of experience in the grocery industry, this story hasn’t changed in 40 years, only the circumstances. While many companies are showing little to no same-store sales growth, Walmart’s same-store sales are up 4 percent – with online sales accounting for just 10 percent of total sales. So contrary to what some are saying, brick and mortar is not dead. Today’s top operators are using interpreted data that delivers answers to store operations and gets to the heart of growing sales and busting shrink. Interpreted data gives store managers and supervisors clear, direction and supports best practice execution to increase sales, reduce operational shrink loss, mitigate out of stock item conditions and improve cash flow. There are seven keys to running a growth store. When it comes to running a profitable operation, store teams must be trained to understand these keys in the in-store inventory management, profit-optimization supply chain. These steps form the foundation for growing sales, controlling shrink loss and achieving profit and loss objectives.
1
Operations Excellence is Circular
Stores order, receive, store and handle, produce and display, and hopefully sell what they order and receive daily. This circular process is at the core of running a well-stocked, clean, organized, efficient and profitable store. Store managers and their teams have two fundamental jobs – customer service excellence and shrink prevention for profit optimization.
2
Customer Service Excellence (CSE)
3
SKU Optimization and Rationalization
4
Bold, Enticing Displaymanship that Captures Shopper Attention and Imagination
CSE is more than smiles, greetings and eye contact. It must include everything that drives customer loyalty: full variety, zero top selling item out of stocks, cleanliness, quality, enticing displays, and of course, excellent store teams who are happy to engage, serve and sell to every shopper. The bottom line is to have everything the shopper needs, in a clean, bright store with friendly teammates who are happy to serve.
SKU rationalization goes two ways. On its surface, don’t carry items that aren’t selling to turn inventory and cash flow, but, be sure to always have available every store’s top selling 1,000 items. The Food Marketing Institute and Grocery Manufacturers Association report that out of stock items cost stores 1.8-3.0 percent in annual sales, not to mention customer disappointment.
Much is written about customer experience. Excellent displays are designed to grab attention, entice and sell, sell, sell, but excellent displays should also produce affinity item sales from smart crossmerchandising of top selling items. Continued on page 65 ▶
◀ Continued from page 63
5
Operational Shrink Prevention
The lion’s share of store shrink is operational shrink (64 percent), caused in large part by a breakdown in the execution of store operations best practices. These losses take place at the seven points of control in the inventory control supply chain inside your store.
7
Finally, Get Them In and Sell Them More
What’s more important: growing customer count or growing average sale per customer? If we get them in by selling soft drinks at below cost, it’s only smart if we also drive the average sale per customer (SPC) and items per customer (IPC) by cross-merchandising and promoting other profitable items that together drive sales at combined positive gross margins. Stores can impact SPC, either positively and negatively.
Shrink It has often been said that “Shrink Happens,” or that “Shrink is a Cost of Doing Business.” Shrink does happen, but excessive shrink is “caused.” Controlling shrink to best-inclass levels is everybody’s business – every department manager, every store manager, every product specialist and every buyer. That said, it’s amazing how easy it is to reduce store shrink 10, 15, even 20 percent. iStock
“Controlling shrink to best-in-class levels is everybody’s business – every department manager, every store manager, every product specialist and every buyer. ”
Where’s the Shrink?
64% Operations
36% Theft
Avg Shrink:
2.70%
6
Turns, Turns, Turns
Buyers need to buy for turns and stores need to order for turns, inventory needs to be managed for turns. Failure to turn is an operational cancer that hurts sales and weakens gross margins. In over 80 percent of the companies we work with, managers and department leads have very little consciousness of the vital role of inventory turns in everything they do. When managed effectively, inventory turns create cash flow, grows profit, improves labor efficiency, reduces shrink loss and promotes positive morale.
When doing so, I always reveal the inseparable link between shrink reduction and sales growth. If retailers are trained to grow sales and reduce shrink loss, managers grow from being caretakers to moneymakers. They learn to compete, beat and win. When store teams are properly motivated and enabled with smart technology, making money by growing sales and reducing shrink becomes a challenging, fun game. (See chart: “Where’s the Shrink?”) We all know shrink is a cancer to profit. Properly measuring shrink loss provides a portal into growing sales, customer satisfaction and profit, particularly in expanding fresh departments. As fresh expands to compete locally and ward-off sales erosion caused by Amazon, Dollar Stores and others, shrink has a natural tendency to increase. Every manager must be trained to be a profit-realization expert to proactively manage shrink loss in real dollars and to take appropriate best practice action to correct excessive shrink loss. Continued on page 67 ▶
Source: National Supermarket Shrink Survey®
CAL I FO RNIA GRO CER | 65
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◀ Continued from page 65
The National Supermarket Shrink Survey examines the masking of shrink loss, and reports that when retailers only measure shrink loss as the difference between gross margin projected versus realized, it opens a Pandora’s box of bad behaviors. First is the knee-jerk reaction to raise prices to reach gross despite shrink loss. Our operational pricing audits have shown retailers building as much as 8 percent shrink loss into their fresh area pricing. This causes an undesirable competitive pricing condition. Second, 48 percent of fresh departments either cut down on variety to only what they sell, ignoring what they could sell, or just plan produce to run out of stock to avoid shrink. The bottom line is that shrink isn’t bad. A reasonable amount of shrink is needed to promote and grow sales, but excessive shrink is bad. Remember: shrink is controllable.
To control shrink to acceptable levels, it must be measured. If it can be seen, it can be controlled. Once you know what it is, why it is and learn how to best prevent it, you can win the war on shrink.
Training When training is perceived as an expense, it becomes one of the first areas eliminated. However, when management views training as a vital business optimization investment, companies grow. Employees are the business cornerstone to providing a positive in-store shopping experience. When store teams are well-trained, and leadership supports a people-first culture, the store team becomes the key to unlocking new sales, improving cash flow, lowering shrink, reducing out of stocks, ensuring cleaner stores, and creating a positive instore shopping experience.
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CAL I FO RNIA GRO CER | 67
Linda Parriott:
First Lady of Giving 68 | CAL I FOR N I A G R OC E R
California Grocers Association First Lady Linda Parriott wears a variety of hats inside Twain Harte Market. Her favorite one should be “Chief Giving Officer” as she coordinates a slew of donations, annually, for everything from schools to sports teams to the Sierra Repertory Theater to hospitals. Linda is the wife of CGA Chairman of the Board Bob Parriott, who, along with Linda, operate Twain Harte Market in Twain Harte, Calif. Bob was instrumental in the merging of the California Independent Grocers Association and CGA in 2014. “Like all independent stores, we give all year,” she shares. “There is a constant stream of giving and even if I mentioned them all, I’m sure I’d leave one out.”
“Anytime I have a house guest, I make a pot of Grounds and Hounds Coffee,” she reports. “In every case, they’ll say, ‘…this is such great coffee, what is it?’” She says her brother and sister in-law heard the Grounds and Hounds story and were so taken with the product and the cause, they signed up to have the coffee shipped to their home. “They’ve passed it on,” she adds. “It’s a really nice story.”
“For example, very year, Bob goes down to the Motherlode County Fair and purchases a hog that’s been raised by one of the FFA or 4-H kids at the local high school,” she says. “We pay to have it slaughtered and packaged and then we connect with a local organization and let them raffle it off.” While the Parriotts haven’t chosen this year’s recipient but if tradition holds true past donations have gone back to the Future Farmers of America, the Watch program (for disadvantaged kids), their local theater organization and Twain Harte Rotary. “It feeds the cycle,” says Linda. “It helps the kids, helps the community, involves the community and, oh my gosh, the bacon off those hogs is like nothing you’d find in the stores.” Another new favorite of hers is a partnership developed with Grounds and Hounds Coffee, which grows and packages coffees from sustainable sources, then donates a percentage of retail and online sales to the local humane society, in this case to the Tuolumne County chapter. The program, “Every Pound Saves a Hound,” has Parriott’s endorsement at work and at home.
Twain Harte Times
“We’re a small, independent retailer and we like to support small, independent companies.” Parriott says Twain Harte Market makes an effort to support independent operators like G & H for good reason: there are fewer and fewer of them. “We’re a small, independent retailer and we like to support small, independent companies,” she says. “You never know when a new product will grab the customer’s eye, but this one did. It’s been a lot of fun to work with them.” Twain Harte has to be creative about how it gives back, Parriott states, because the store operates in such a small geographic area. “I don’t think you’ll find someone in Silicon Valley going down to the fair to buy a pig!” she quips. ■ CAL I FO RNIA GRO CER | 69
KNOW THE LAW
Valuation Discounts in Modern Estate Planning BY: KR IST IN CAP R I T TO A N D S I L R EG G I A R DO
For most family business owners, the old way of discount planning has become perishable. For many years, closely-held business owners routinely heard estate planners advise them to give or sometimes sell family members’ interests in the business (sometimes outright and sometimes in trust) to reduce transfer taxes: gift tax, estate tax and even generation-skipping transfer tax. This type of planning allows business owners to take advantage of valuation discounts by fragmenting business ownership to reduce a business’ value for estate planning purposes without necessarily causing the senior generation owners to lose control of the company. This planning can be very effective for business owners who expect their estates will be subject to transfer taxes on death. These days, however, the transfer tax exemptions are so large that many, if not most, taxpayers will never be subject to them. In those situations, estate planning which fragments business ownership using fractional valuation discounts may be counterproductive from a tax planning standpoint. For example, consider the Marker family. Price and Inka own a grocery store corporation as community property. They each give their children, Lyn and Garvey, 5 percent of the stock. Now, the parents
70 | CAL I FOR N I A G R OC E R
each own 45 percent of the stock, the children each own 5 percent, and no single owner has majority control of the corporation. This can be effective transfer tax planning if the Markers’ overall estate is large enough to trigger estate tax at some point; however, it can be poor income tax planning if the estate is not expected to reach that level. This is because the transfers reduce the overall income tax basis of the stock when compared to what it would likely be if held in the estate of the surviving spouse. The best overall tax planning might be to have the surviving spouse ultimately own the entire corporation. (Note, however, that there may be reasons for a different approach not discussed here, depending on the circumstances). Under the valuation standard that applies for wealth transfer planning, we look at what a buyer would pay for each particular interest. A buyer would not pay 45 percent of the corporation’s value for 45 percent of the stock if that stock did not give the buyer 45 percent of the voting rights. This is because the buyer would become a minority owner who could not control corporate decisions and could not sell the stock on an exchange.
In this situation, a buyer would insist on discounting the stock value for this lack of control and lack of marketability. Discount levels depend on each case but can approach 50 percent of the undiscounted value. The fact that we are dealing with an entity comprised of related owners is irrelevant. We do not value the entity as a unit; instead, we look at each interest separately. In this example, all owners have minority interests, and for valuation purposes, the sum of the parts does not equal the whole. These valuation discounts have been quite popular in estate planning during recent decades. Discounts have allowed business interests to pass by gift or through estates at lower values. That has often reduced the estate tax (for transfers through estates) and gift tax (for lifetime transfers). These reduced transfer taxes have reduced the cost of transferring family entities to the next generations. But there is a catch: as these interests pass through estates, they generally receive a new income tax basis equal to the market value of the property interest in the estate, which usually gives the recipient of the property a step up in basis for property that may have been held many years. In contrast, when a donor makes a lifetime gift of appreciated property, the donee receives their income tax basis. A market value basis adjustment can reduce income taxes significantly. Because gain on the sale of an asset equals the
KNOW THE LAW
amount realized minus basis, the new basis adjustment reduces or sometimes eliminates gain as family members sell interests received through estates. The market value basis adjustment applies only to property held in an estate (even if in a revocable trust). Discounts from fragmented ownership may be counterproductive because they reduce a positive basis adjustment in an estate and can increase taxable gains. This loss of a basis adjustment can be the price for avoiding a 40 percent estate tax (and equivalent generation-skipping transfer tax in some instances). However, under current law, each person may transfer up to $11.18 million through an estate (lifetime taxable gifts reduce the amount available in the estate). For couples, each has that exemption and may transfer the exemption to the survivor, which means married ADC-Ad-CGA_0918-FINAL.pdf
1
couples can transfer up to $22 million in life or in death free of transfer tax. Yet, despite the adage that nothing is certain but death and taxes, we now have some uncertainty: the recently-doubled exemption is scheduled for a 50 percent sunsetting reduction in 2026. Yet, even if that reduction occurs, large estates may still be exempt from these transfer taxes depending on when the gift was made. Fragmenting closely-held business ownership to discount the family’s overall business value as described above can be great tax planning when estate taxes will likely be paid. Conversely, it may be bad planning if the estate is unlikely to be large enough to pay estate taxes. In that case, the better planning can be to avoid fragmented ownership in order to preserve value and produce the best income tax basis adjustment possible as entity interests
9/6/18
pass through estates. In other words, the best tax planning depends on the expected size of the estate and can point in opposite directions, depending on the situation. The estate and gift tax exemptions are now so large that most people and their estates will never pay these taxes and the valuation discount planning we have seen in recent decades is giving way to a different type of thinking about wealth transfer and family succession planning – the focus has shifted from the creation of discounts to avoid estate and gift tax, to the preservation of income tax basis for transferred assets. For most family business owners, the old way of discount planning has become perishable. ■ Editor’s Note: Kristin Capritto (kcapritto@ downeybrand.com) is an associate and Sil Reggiardo (sreggiardo@downeybrand. com) is a partner in Downey Brand’s Sacramento office.
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CAL I FO RNIA GRO CER | 71
Packaging is Our Craft
Coyne Maur Bane Design Partners is a full-service design agency that’s distinctly branded our clients’ products and services for more than 20 years. Whether it’s a package, brochure or pixels on a screen, CMB sets you apart by helping you create a strong meaningful brand. See what we can do for you.
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ONE DAY SEMINAR FOR A One-Day Seminar for Independent Store Leaders & Executives
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D Y O L L D L O HAR This seminar explores timely industry challenges and provides meaningful strategies to strengthen and empower independent store leaders and executives. Topics include: leadership development, new merchandising concepts, employee retention and effective performance reviews. Southern California October 23, 2018 9:00 a.m. – 5:00 p.m. Santa Ana, Calif.
For more information, call (916) 448-3545 or visit Featuring www.cagrocers.com Harold Lloyd
Cost: CGA Members: $25 • Non-Members: $175 Register: Visit www.cagrocers.com/events Sponsored by California Grocers Association Independent Operators Committee • CGA Educational Foundation
Special Advertising Opportunity! California
This December, Kendra Doyel, Sr. Dir., Human Resources & Labor Relations for Ralphs Grocery Company and Food 4 Less/Foods Co., will become Chair of the CGA Board of Directors. To recognize this impressive achievement, California Grocer will feature an interview with Kendra in its December issue. Your company can recognize Kendra as well by placing a congratulatory ad. Join your industry peers in congratulating one of California’s leading grocery industry executives. For advertising rates and deadlines, contact Dave Heylen, CGA, at (916) 448-3545
74 | CAL I FOR N I A G R OC E R
ADVERTISER INDEX PAGE
COMPANY
PHONE
WEBSITE
66
Agilence
856-366-1200
bdonnelly@agilenceinc.com
agilenceinc.com
6, 52
Albertsons Companies
925-467-3000
71
Applied Data Corporation
53
Bimbo Bakeries USA
916-456-3863
wcrocker@bbumail.com
bimbobakeriesusa.com
9
C & S Wholesale Grocers
916-373-4396
pmiller@cswg@com
cswg.com
59
CA Grown
916-441-5302
info@californiagrown.com
californiagrown.org
11
California Lottery
BC
Certified Federal Credit Union
19
Chosen Foods
72
CMB Design Partners
916-605-6500
studio@cmbdesign.com
28
Command Packaging
323-446-3303
cchangala@commandpackaging.com commandpackaging.com
57
DanoneWave
45
ECOS
800-335-3267
craig@ecos.com
42, 43
Emerson Grind2Energy
800-845-8345
71
F. Gavina & Sons
323-582-0671
Mike.Artukovic@gavina.com
gavina.com
49
Harris Ranch Beef Company
559-896-3081
Brad.Caudill@HarrisRanch.com
harrisranchbeef.com
17
Henkel
29
The Hershey Company
717-534-3660
bcotton@hersheys.com
hersheys.com
IFC
Kellogg Company
269-961-2000
kelloggs.com
27
MillerCoors
916-786-2666
millercoors.com
13
Moss Adams
916-503-8206
marci.reynolds@mossadams.com
mossadams.com
60, 61
Nestle Purina PetCare
314-982-1000
joe.toscano@nestle.purina.com
purina.com
46
NGB Markets
650-646-4931
info@ngbmarkets.com
ngbmarkets.com
34, 35
NuCal Foods
209-254-2225
skoch@nucalfoods.com
nucalfoods.com
IBC
PepsiCo Inc.
949-330-5804
67
ProfitTrax
(602) 448-8500
8, 39
Ralphs Grocery Company
310-884-9000
ramprintforus@gmail.com
ralphs.com
64
Regional First Aid
877-872-2600
sales@regionalfirstaid.com
regionalfirstaid.com
4
Retail Marketing Services
800-252-4613
mdodson@retailms.net
cartretrieval.net
16
Sioux Honey Association
510-88-1511
25
SUPERVALU
323-264-5200
customercare@supervalu.com
supervalu.com
21
TRUGrocer Federal Credit Union
208-385-5273
cdemaray@trugrocer.com
trugrocer.com
10
Unilever
800-298-5018
albertsons.com AppliedDataCorp.com
calottery.com 909-261-4065
ghurd@vonscu.com
vonsefcu.com chosenfoods.com cmbdesign.com
ecos.com Grind2Energy.com
pepsico.com
siouxhoney.com
unileverusa.com
CAL I FO RNIA GRO CER | 75
MOMMY BLOGGER
It takes an (online) village K I M B ER LY M I L L ER WR IT E R , ACT R E S S
We all need help from time to time, even when making dinner. My husband was out of town, my dad had moved in with me while recovering from surgery, my two-year-old was home sick from daycare, and I was pulling over every 10 minutes between shuttling everyone to doctor appointments to deal with crippling morning sickness.
Which is why most of the moms I know, and trust and confide in are people I have never met in person. So, there I was telling this group of 500 moms that I was completely overwhelmed and the responses were immediate:
And then my car broke down on the highway.
“How can we support you?”
Exhausted and on the verge of tears, I did what every Millennial mom does: I vented to my online moms’ group about the week I’d been having. It takes a village, but since none of my close friends have kids, one isn’t always immediately available.
“What do you need?” “We have your back.” “Honestly,” I wrote back. “I just need food. Healthy food I can feed my family that I don’t have to cook.”
Two days later an enormous delivery of ready-to-heat meals, organic milk, fresh fruit and vegetables, and just enough chocolate to get me through the week until my husband got back, stocked my kitchen. Internet moms to the rescue. I’ve never seen most of these women in person, but I trust them. They get how hard it is trying to do it all, and they knew exactly what I needed: Real food. Not microwave dinners or boxes of pasta and a powdered cheese – the kind of stuff I grew up on. Vegetables. Lean proteins. Whole grains. Chocolate. While this week was more chaotic than most, there isn’t a week that goes by that I don’t need a little help making meals happen at one point or another. Before I had kids, I couldn’t understand why anyone would buy a pre-diced onion. Now I get it. Shortcuts make dinner possible. I’m happy to spend a bit more to bring home fresh pre-prepared foods, foods that won’t make me feel guilty. Bring on the rotisserie chickens, pre-marinated pork loins, ready-tobake casseroles, and pre-chopped vegetables. The more options I have to prep for those nights that come at the end of long days, the better equipped I feel to handle everything else life throws at me.
iStock
76 | CAL I FOR N I A G R OC E R
While I don’t often ask for help from my (Internet) friends, I will take all the help I can get when I’m doing my weekly food shop. ■
California Grocer Online www.cagrocers.com
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