California Grocer, 2013, Issue 5 by Digital Gear

2013, ISSUE 5

CALIFORNIA GROCERS ASSOCIATION

Think Two Moves Ahead...

IN THIS ISSUE

For the latest industry news visit www.cagrocers.com

The New Consumer Millennials — Your Most Influential Shopper Omni-Channel Retail — The Future is Here Reality Check

CGA

| Board of Directors

EXECUTIVE COMMITTEE

Chairman of the Board Kevin Davis Bristol Farms First Vice Chair Mary Kasper Fresh & Easy Neighborhood Market Inc.

Second Vice Chair Joe Falvey Unified Grocers, Inc. Treasurer Kevin Konkel Raley’s

Dave Jones Kellogg Company

Dora Wong Coca-Cola Refreshments

DIRECTORS

Raul Aguilar Anheuser-Busch InBev Jon Alden Jelly Belly Candy Co. Renee Amen Super A Foods, Inc. Teresa Anaya Northgate Gonzalez Markets Joe Angulo El Super (Bodega Latina Corp.) Dennis Belcastro Hillshire Brands Company Paul Cooke Nestlé Purina PetCare Brent Cotten The Hershey Company Robert Digrigoli Procter & Gamble

Kendra Doyel Ralphs Grocery Company John Eagan Costco Wholesale Phil Gentile, Jr. K.V. Mart Co. Jon Giannini Nutricion Fundamental, Inc. Diana Godfrey Smart & Final Stores Bill Jordan Whole Foods Market Michel LeClerc North State Grocery, Inc. Eric Lindberg, Jr. Grocery Outlet, Inc. Dave Madden MillerCoors

Casey McQuaid E & J Gallo Winery Dan Meyer Stater Bros. Markets Omar Milbis Rio Ranch Markets Phil Miller C&S Wholesale Grocers Eric Nadworny Save Mart Supermarkets Hee-Sook Nelson Gelson’s Markets Vinit Patel Unilever Bob Richardson The Clorox Company Brian Schmidt Acosta Sales & Marketing

Harish Solanki Big Saver Foods, Inc. Naresh Solanki Bestway/Gardena Supermarkets Mike Stamper Nestlé Sales Division Dirk Stump Stump’s Markets Tiernan Summins Kraft Foods Group, Inc. John Swindell Food 4 Less/Foods Co. (A Kroger Company) Paul Turcotte Pepsi Beverages Company — WBU Jim Wallace Albertsons/Sav-On Pharmacy

SUPPLIER EXECUTIVE COUNCIL

Veronica Rendon, Dave Thatcher Alta Dena Certified Dairy, LLC Rick Van Nieuwburg Altria Corp. Services Raul Aguilar Anheuser-Busch InBev Rick DuCharme, Perry Sanders BBUSA, Rainbo Baking Co., Nature's Harvest Dan Atkins Berkeley Farms, Inc. Gilbert de Cardenas, Bob Cashen Cacique USA Victoria Horton California Beer & Beverage Distributors Cindy Plummer California Table Grape Commission Keith Olscamp Campbell Soup Company Mark Cassanego Carr, McClellan, Ingersoll, Thompson & Horn Pat Huston, Robert Hilliard Cash Register Services

Damon Franzia Classic Wines of California Nancy Limon, Dora Wong Coca-Cola Refreshments Vic Chiono Coca-Cola Refreshments Minute Maid Business Unit Ron Bloes Coffee Bean & Tea Leaf Stephenie Shah Diageo Andres Jaramillo Don Pedro’s Kitchen Scott Johnson, Shannon Nadasdy Financial Supermarkets, Inc. Bruce Wyatt, Thomas Wilson Flowers Baking of California Brian Rosen, Ann Wilson Gleason Inc. Fernando Gallego Golden Gate Paper Company John Hewitt Grocery Manufacturers Association

David Van Winkle Hansen Beverage Company Elizabeth Alvarez-Sell, Greg Bailey The Hershey Company Tim Cohen Hidden Villa Ranch Dennis Belcastro Hillshire Brands Company Kristina Crystal-McVay The J.M. Smucker Co. Dave Jones Kellogg Company Richard Bell LOC Software Dave Madden MillerCoors Kevin Arceneaux, Rick Brindle Mondelez International Steven Schultz Moss Adams LLP Paul Cooke, Karen Doggendorf Nestlé Purina PetCare Jim Van Gorkom NuCal Foods

Lauren Ziminsky Patriot Risk and Insurance Services Inc. Laurie Stone PBI Market Equipment, Inc. Paul Turcotte Pepsi Beverages Company — WBU Vince Delgado Procter & Gamble Melanie Zitting, Sue Sharp Pure Water Technologies Renee Wasserman Rogers Joseph O’Donnell Darrell Costello Roplast Industries, Inc. Tom H. Daniel Sterilox Food Safety Karen Grierson TC Transcontinental Northern California Phyllis Adkins TruGrocer Federal Credit Union Vinit Patel Unilever Jennifer Ward World Pay US, Inc.

C A L I F OR N IA G R OC ER

CHAIRMAN APPOINTMENTS

Secretary Michael Read WinCo Foods, Inc. Immediate Past Chair Jonathan Mayes Safeway Inc.

CONTENTS

F E AT U R ES

COLU M NS

The New Consumer

One of the world’s top trendspotters explains how the Great Recession and the incredible ascension of digital technology has had a significant seismic impact on how consumers now shop. Meet the new consumer.

Millennials — Your Most Influential Shopper

| Issue 5

The M-generation is now 80 million strong, according to a recent study, and responsible for $600 billion in annual spending — a figure that is expected to double by the year 2020. But what makes Millennials tick and shop, and are they really different from past generations?

Omni-Channel Retail… The Future of Retailing is Here The journey of creating a seamless integrated selling experience for shoppers across in-store, online and mobile is just beginning. But what is omni-channel retailing and why must retailers embrace it?

Reality Check: 3 Realities the Grocery Industry is Facing With the Rise of Millennials The president of a top creatively-driven, consumer-centric advertising agency shares three realities grocers need to know to connect with the rising influence of Millennials.

President’s Message More of the Same................................................ 5 From The Chair Game Changers!.................................................. 7 Viewpoint — Kevin Coupe Travel Dispatches & Business Lessons................. 14 Capitol Insider — Louie Brown Musical Chairs in the Legislature........................ 20 Perspective New Economic Development Incentives Replace Enterprise Zone Tax Credits.................. 23

DEPA RT M EN TS CGA News........................................................ 12 Government Relations...................................... 27 Washington Report ..................................... 30, 32 Q & A — George Runner....................................35 Know the Law................................................... 72 Wealth Management..........................................77 Advertiser Index ............................................... 80

CALIFORNIA GROCERS ASSOCIATION President/CEO Ronald Fong

Vice President, Communications Dave Heylen Vice President, Business Development & Marketing Doug Scholz

Director, Events & Sponsorship Beth Wright Director, CGA Educational Foundation Brianne Page Director, Local Government Relations Sarah Paulson Sheehy

Publisher Ronald Fong E-mail: rfong@cagrocers.com Editor Dave Heylen E-mail: dheylen@cagrocers.com For advertising information contact: Tony Ortega E-mail: aortega@cagrocers.com

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

C A L I FO RN I A G RO C E R

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

Executive Director, CGA Educational Foundation Shiloh London

The Independent Strategy

Unified Grocers

is dedicated to keeping our retailers ahead of the game with products, programs and services tailored to their unique needs.

C A L I F OR N IA G R OC ER

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Ph: 800-724-7762 | unifiedgrocers.com

PRESIDENT’S MESSAGE

More of the Same

The more things change, the more they stay the same it seems.

The California Legislature wrapped up the first year of its current two-year session with a flurry of activity, yet was unable to address several issues critical to California’s business community. Late-breaking efforts by Governor Jerry Brown to broker deals on Proposition 65 and Unemployment Insurance Fund solvency never materialized. A grand proposal by Senate President Pro Tem Darrell Steinberg to reform CEQA fizzled.

Major victories for labor in particular included doing away with much of California’s controversial Enterprise Zone program and a late-session success in significantly increasing the minimum wage. They also scored several victories in the “worker rights” arena sending bills to the Governor that seek to expand leave rights and create additional opportunities to sue employers. While the Governor has committed to signing the wage bill, it is unclear what he will do with other labor asks.

RO NALD FONG President/CEO

As we move through the interim recess and into the second year of the Legislative session, additional threats remain. Senate leadership has already indicated 2014 will be the year tax issues are addressed — and that is seldom a good thing for California’s business community. Having received a temporary infusion of cash via Proposition 30, Democrats must now look to additional revenue sources before those funds dry up in 2016. This particularly true if they want to restore prior spending cuts and create new entitlements. Opportunities exist as well, though.

By most accounts, it was a mixed bag. As with any group, not all Democrats are the same and the job of managing so many different agendas and political priorities is certainly a challenge, especially with both of the Legislature’s top Democrats set to term out at the end of 2014.

C A L I FO RN I A G RO C E R

Political pundits spent much of the year wondering whether the Democrats’ new supermajority strength could be managed effectively, or whether traditional constituencies like organized labor, trial lawyers, and environmental activists would rule the day.

The 2014 election cycle is not expected to be as “friendly” to Democrats as 2012 was. Redistricting that took place in 2012 did provide a few rays of hope for Republicans on the Senate side. If the Republican party, under new leadership, can capitalize on enough of them to cut Democrats’ control back to a simple majority, it would certainly help dampen attempts to raise taxes. n

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Program

FROM THE CHAIR

Game Changers!

The Game is on! The CGA Strategic Conference in Palm Springs brings retailers, wholesalers and suppliers. The CGA Strategic Conference is underway this week in Palm Springs, Calif., and just as promised, it’s jam packed with California retailers, wholesalers and suppliers all seeking to gain an advantage from the insights of the high powered speakers and presenters; as well as the connections and relationships that are available

from “convenience” to “price” to “quality” to “trend” can be evaluated, rated, commented on and/or purchased — digitally or electronically, remotely, and instantaneously — by our consumers as they so choose! Talk about Game Changers!

from the more than 900 pre-scheduled business meetings taking place.

were targeted to white women, 18 to 49 years old; not men, women, singles, empty nesters, Millennials, “X’s” or “Y’s,” and Latino’s or Tai’s?

The program has been finely tuned to focus on the key topics most important to all of us in the grocery industry who are “In The Game” of driving sales and customer traffic. While we are constantly looking for the next great store location or new product to offer our customers; the speed of the Game (and the Change!) seems to have revved up even more, if that’s possible. Nowadays, in addition to maintaining our services, product offerings and locations, it seems we also have to watch more closely than ever before the changing expectations and demands of our ever evolving customer base. Demographics are changing like never before, in part due to generational maturity of the Baby Boomers and Millennials, and in part because of rapid assimilation of new ethnic groups into mainstream shopping patterns across our statewide landscape.

The result?

It seems like only yesterday when all of our ads

I remember when customers didn’t know the new products that were becoming available until we, as grocers, stocked them on our shelves. Today, they bring their smartphone to you with a YouTube commercial of the product they want you to carry, with five reviews of how it tastes, the product attributes, and where else they can buy it and at what price they’ll pay! It wasn’t that long ago that Hispanic and Asian foods were imported products in special sections in a back aisle somewhere in the store. Today they are so mainstream you need to know what Latin speaking country your customer is from to make sure you have the right items to serve their needs, and what kind of rice, noodle or sauce is homestyle to your customer from Japan, Korea, Thailand, China, or Vietnam. Sure, everybody used to cut coupons to save money now and then, but since the shoppers didn’t know the regular retail price to start with, it seemed like we were just directing them to products we wanted to sell, rather than the customer saving money on the items they really wanted. Continued on p. 8

Perhaps the fastest evolving customer base we have ever seen, in an economy where everything

CGA Chairman of the Board President/CEO Bristol Farms

C A L I FO RN I A G RO C E R

These demographic changes, coupled with the ever present economic aftermath of the recession, and the way it has forever altered the consumer mindset regarding value, seem somehow at odds with the technological explosion of the digital, mobile and social media based innovations that provide a never ending torrent of information to our shoppers!

KEVIN DAVIS

FROM THE CHAIR

Continued from p. 7

New technology meant scanners and credit cards, not digital coupons, QR codes, mobile payment apps, and Twitter messages. Whether we want to admit it or not, we are no longer in charge of the “Game.” Information technology and digital capability have changed the rules. The Game is now in the hands of our consumers and we, as retailers, wholesalers and suppliers, have a short window of opportunity to re-learn the rules… adapt or perish.

We do believe, however, that this program and the speakers that have been brought together will stimulate your thinking, define new concepts and trends, and help give you the tools to develop your own roadmap to determine which customers you want to serve, how best to provide for their needs and expectations, and how to prepare your company to change with the game. There is of course “luck” involved in every “game,” but I am reminded of a famous quote from Samuel Goldwyn: “The harder I work, the luckier I get.”

The CGA Strategic Conference can’t possibly give you every answer to the wide-ranging questions and issues facing our industry; especially in the rapidly changing areas of demographic trends, the economy, and new technology.

We will all be working at getting lucky at this year’s CGA Strategic Conference. Changing the game is up to you. See you at the Conference! n

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C A L I F OR N IA G R OC ER

Solutions

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CGA EDUCATIONAL FOUNDATION

UPCOMING INDUSTRY WEBINARS and EVENTS Webinars are free for CGA members. $75 for non-members. Learn More & Register at www.cgaef.org WE B I NAR S Wed, Oct 9

10 AM (PST)

Emerging Retail Technology* Speaker: David Selinger, CEO & Co-Founder, RichRelevance

In this eye-opening presentation, David Selinger, the hightech entrepreneur responsible for leading the development of Amazon.com’s highly-effective personalization software, will explore how technology is influencing the way people shop and explain how retailers can connect with this next generation of shoppers. David will also sit down for a fireside chat with Gokul Rajaram, an executive from Square Inc., a Silicon Valley startup developing mobile wallet & mobile register technology, to discuss their innovations specific to grocery and how it can improve the experience for customers and make transactions faster and more efficient. *Rebroadcast of CGA Strategic Conference Keynote Luncheon

Wed, Nov 6th

10am (PST)

C A L I F OR N IA G R OC ER

January 1, 2014 Online at www.cgaef.org

CGAEF Hall of Achievement March 13, 2014 Hilton Costa Mesa

CGAEF Scholarship Application Process Closes April 1, 2014 Online at www.cgaef.org

CGAEF Golf Classic — So. Cal.

Speaker: David Van Pelt, Attorney at Law, Sheppard Mullin

July 9, 2014 Pacific Palms Resort Industry, CA

Tues, Dec 10th

CGAEF Scholarship Application Process Opens

Affordable Health Care Act Although much of the discussion about the Affordable Care Act (“ACA”) has focused on the expansion of medical insurance coverage to the uninsured, the law will also result in changes for companies who provide insurance coverage to their employees. This webinar will summarize the requirements imposed on companies to provide insurance coverage to employees (including the applicability of penalties and multi-employer plan transition rules), the availability of subsidies, as well as the current deadlines for employer compliance with the ACA’s obligations, and recommended approaches for companies of different sizes to follow the ACA in as cost-efficient a manner as possible. The webinar will cover these issues with an interactive program that combines what the ACA requires with their practical application for employers.

U PC O M I N G E V E N T S

10am (PST)

New Laws for 2014 Speaker: Louie A. Brown, Jr. , Attorney at Law Kahn, Soares & Conway, LLP

During this important webinar, you will learn more about new laws that will significantly impact grocery companies in California and begin to determine whether your company must comply.

CGAEF Golf Classic — Nor. Cal. July 22, 2014 Blackhawk Country Club Danville, CA

Trademarks owned by Société des Produits Nestlé S.A., Vevey, Switzerland

We believe pets and people are better together. After more than 80 years in the pet food industry, the reason we remain so invested in the quality and safety of our foods is that we love pets as much as you do. You’ll find pets not just in our homes, but sitting by our feet as we work in our offices. Pets have made our lives better – and that’s why we’re working hard to do the same for them.

Meet Purina. Find out more at www.Purina.com

C GA N EWS

SEC Tours Super King Markets

Shabnam Paidarfard — Marketing/Advertising for Super King, Pat Huston — General Manager for Cash Register Services, Matthew Dodson — VP for CSCRC, Carolina Villalpando — Embajadora Del Sabor for Don Pedro’s Kitchen

From the minute this CGA Supplier Executive Council (SEC) store tour was announced to the final minute of event planning, it was obvious this tour was going to be memorable and not to be missed. For the third stop of the 2013 SEC Store Tour Series, Super King Markets hosted the tour on August 22 at its newest location in Van Nuys, Calif.

Family owners, executives and buyers lead SEC members throughout the store, providing insights to how Super King operates, connects with its customers and views the grocery industry in general. With each host having a slightly different perspective, SEC members received a well-rounded perspective on how Super King is successful with such an ethnically diverse group of customers and employees. Supplier attendees not only strengthened their relationships with Super King, but with other SEC members as well. The tour concluded with a lunch offsite hosted by Super King, allowing additional networking opportunities for SEC members. These exclusive store tours are an added benefit to SEC membership. They provide unique opportunities to learn directly from top California grocery retail executives how they approach operational strategies to better serve their customers.

C A L I F OR N IA G R OC ER

To learn more about the SEC Store Tour Series, or becoming an SEC member, contact Sunny Chang, Manager, Membership Marketing, at (916) 448-3545. n

Darrell Costello — Roplast, Harry Cherkesyan — Super King Buyer

CGA WELCOMES THE FOLLOWING NEW MEMBERS: Campbell Soup Company One Campbell Place Camden, NJ 08103-1701 Contact: Keith Olscamp, VP, Industry Relations & Trade Marketing E-mail: keith_olscamp@campbellsoup.com Tel: (513)697-2920 Website: www.campbellsoup.com Freshpoint, Inc. 5900 N Golden State Blvd Turlock, CA 95382 Contact: Alex Abid, Produce Specialist E-mail: alex.abid@freshpoint.com Tel: (209) 918-54494 Website: www.freshpoint.com

Inventory Professionals Inc. 1011 S Rexford Ln Anaheim, CA 928808 Contact: Arun Gandhi, President E-mail: invenpro@aol.com Tel: (714) 693-3336 Website: www.inventoryco.com

C GA N EWS

CGA New Members

Patriot Risk and Insurance Services Inc. 8105 Irvine Center Dr Ste 400 Irvine, CA 92618 Contact: Lauren Ziminsky, Producer E-mail: laurenziminsky@patrisk.com Tel: (949) 486-7918 Website: www.patrisk.com

Serving California Grocers Since 1986 It Pays to Recycle

C A L I FO RN I A G RO C E R

To partner, call 1.877.737.5263 or email Joe.Perez@rePlanet.com

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VIEWPOINT

Travel Dispatches & Business Lessons KEVIN C OU P E

I’ve been doing this a long time. One of the things I’ve learned is that business lessons can be found almost anywhere. I’ve spent the final week of August driving cross-country with my 24-year-old son, Brian. After graduating from college and spending two years working for a boutique wine retailer in Connecticut, he’s decided that it is time to pursue his passions.

Remember, it has been more than a dozen years since Dorothy Lane Markets ran its final newspaper ad and turned to a loyalty marketing program-driven approach that speaks specifically to shoppers based on what and how much they’ve purchased.

He wants to work in the sports management/ marketing/media arena, and live in Southern California. When he announced that he was, in essence, kicking himself out of the house, I offered to drive with him cross-country. It would be a bonding experience, I thought, plus an opportunity for me to see a good part of the country and even visit some favorite retailers.

The company was doing this long before Dunnhumby was developed by Tesco and utilized in the United States by Kroger; it’s built on the singular notion that it makes a lot more sense to cater to existing customer needs than try to attract new customers. It is really a loyalty program, not a technology-driven discount program. And it works.

And, as it happens, accumulate five business lessons that I now can share with you.

How many retailers know — really know — their shoppers, and act on specific information in a way that makes the shopper feel both individual and special? Not nearly enough, I would argue.

C A L I F OR N IA G R OC ER

Know thy customer. Driving through Ohio, it was imperative that we visit Dorothy Lane Markets, the iconic three-store company that celebrates a highly sophisticated food culture in Dayton, Ohio. Once you get past the excellence of the stores, however, you realize that it all comes back to the depth of knowledge that CEO Norman Mayne has about his customers, and how he uses it.

The importance of being a regular. Actually, let me rephrase this. What I meant to say is, the importance of being treated like a regular.

One of my favorite bars in the country is Chicago’s Bin 36, which was the next stop on our trip. Been Continued on p. 16

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VIEWPOINT

Continued from p. 14

going there for years, whenever I get to Chicago, I’ve gotten to know a couple of the bartenders there — Jimmy and Juan — largely because they recognize me and treat me like a regular. Which is amazing because I only get to Chicago once or twice a year. That’s a huge advantage for Bin 36. Because I feel like a regular, I go there every time I go to Chicago. Because there are few things in life as good as feeling like a regular. Think about it. When you walk into your local pub or favorite restaurant, and they give you that special treatment reserved for regular customers, it makes you feel good. So here’s my question: How many of your customers get that warm and fuzzy feeling of being treated like a regular when they walk into your store? I’m not talking about being familiar with where things are because they’ve shopped there before, but feeling like they’d never want to shop anywhere else because the treatment in your store is so differentiated. Hmmm? n

Food matters. Really. As we continued our road trip, the next stop was Minneapolis, Minn. The reason?

Well, there were two. First, we had tickets to see the Minnesota Twins play the Kansas City Royals at Target Field, which was one of just five major league ballparks that I’d never visited. Lousy game, great seats, and now I’m down to four ballparks.

C A L I F OR N IA G R OC ER

But a close second was the opportunity to visit Lunds Market and get one of the best sandwiches I’ve ever had in my life — smoked turkey, Jarlsberg cheese, a slice or two of bacon, topped with cranberry mayonnaise, and served warm on a toasted thick cinnamon bread. I had enjoyed this delicious sandwich during previous trips to the Twin Cities and it seemed perfectly reasonable to enjoy it yet again.

That’s the thing about great food. People will go out of their way for it. It’s the best reason in the world to make sure that, if you’re a food store, you don’t aim for the lowest common denominator. Are you aiming high? n

A basic truth. I hate McDonald’s. I really hate the food they serve. But I ate at more McDonald’s on this trip than I would’ve liked for a very simple reason: when on a road trip, McDonald’s can

generally be counted on for clean bathrooms. (I’m a 58-year-old male. This is important.) Here’s the question I would ask every retailer: How clean are your store’s bathrooms? Because the extent to which they may be your calling card cannot be overestimated. n

Custer’s best stand. One evening, after driving across South Dakota and visiting Badlands National Park and Mount Rushmore, my son and I checked into our hotel. We were in Custer, S.D., a town with a population of fewer than 2,000 people. My son was convinced that we’d never find anything decent to eat, but I’d done a little checking, and I knew that Custer had a brewpub — and that generally speaking, brewpubs can be counted on to have great beer and excellent burgers.

So here’s my question: How many of your customers get that warm and fuzzy feeling of being treated like a regular when they walk into your store? Custer did not disappoint. The Bitter Esters brewpub offered a delicious Coffee Pub Ale with the breakfast burger, which was grass-fed beef served with cheese, bacon and a fried egg. It was after 9 p.m., and we were in the middle of the Black Hills, but there was at least one restaurant that put a premium on excellence. Think of this as a corollary to the “food matters” lesson offered above. Bitter Esters may have been in the middle of nowhere, but I’d go back if given the opportunity. I’d go back if given the opportunity. That’s really the ultimate lesson in all these stops. Whether a great sandwich, or outstanding beer-and-burger, or a legitimate and respectful loyalty program that knows who I am, what I buy and connects with me in a fundamental way, or a pair of bartenders who treat me like a regular, or just a fast food joint that offers a clean bathroom… in each of these cases, I was being given reasons to return. I wasn’t being treated like a commodity that could be replaced. I was being treated as someone of value. A customer. n

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CAPITOL INSIDER

Making California Reasonable The general rule of thumb in the Capitol is if you want to make big change, start small. For any number of reasons, the ability to make comprehensive change to existing law has become very difficult in California’s politically charged environment. Even with the Democrats overwhelming control of the Legislature, major changes to controversial issues are difficult to come by. So often this is the case that many legislators will not even make the attempt to tackle a major issue. That doesn’t seem to be the case for California’s now longest serving Governor. Many credit Gov. Jerry Brown’s interest in tackling major issues to the time he spent in other areas of government between his two stints as the highest state official. Serving as Oakland’s mayor opened his eyes to how state law can and does inhibit local government and private business from getting things done. We have heard the story more than once about his frustration with the time it took to build a library due to the lengthy permit process and dealing with State.

C A L I F OR N IA G R OC ER

In California, we have the California Environmental Quality Act (CEQA), not to be confused with the National Environmental Protection Act (NEPA). This law was created in 1970 and signed by then Gov. Ronald Reagan with the intent of protecting our

land, and recognizing and accounting for the environmental implications of growing and building in California. However, CEQA has become an abused policy that in many cases doesn’t encourage smart and environmentally focused growth in California. On the contrary, it seems to halt growth altogether. This policy has been a focal point for other states to encourage businesses to relocate or expand in places other than California. Stories about building factories in a fraction of the time elsewhere have haunted the Golden State. The Governor announced earlier this year that he would be taking on CEQA and reforming it so that it will continue to protect the environment, but in a way that can actually allow smart growth to occur. Such change requires a give and take from all interested parties, which is easier said than done. California is also home to the Safe Drinking Water and Toxic Enforcement Act of 1986, better known as Proposition 65, an initiative passed by the voters in 1986.

CAPITOL INSIDER

The purpose of Prop. 65 was to inform consumers about the risks associated with products that may be used or consumed. Instead of creating informed individuals who can make purchasing decisions based on worthwhile information, Prop. 65 resulted in vague warnings on a vast number of products and requirements on those who sell them. The proposition also created a cottage industry of private attorney generals who file “shakedown” lawsuits against those not complying, seeking compensation to settle in lieu of proceeding to court.

These are just two examples of laws widely criticized by businesses as creating unnecessary costs, and for being a deterrent to staying or expanding in California. We commend the Governor for attacking these issues head on, and for committing to continuing the fight to address these and other policies in desperate need of reform.

With CEQA, Governor Brown’s administration has sought to bring together stakeholders in this area to make reasonable reforms. CGA and others participated in the discussion — looking for ways to meet the proposition’s intent while reducing the liability its members face under its statutory construction. Unfortunately, like the attempt with CEQA, the latest legislative session ended with no consensus on even the most minor of changes.

In the end, the comprehensive approach may be to take a back seat to minor changes. With that being said, even small changes in the right areas, such as reducing litigation, will be a positive sign for California businesses that Sacramento is working to balance the interest of the consumer, the environment and business. n This article was authored by Louie Brown, a partner in the Sacramento office of Kahn, Soares and Conway, LLP.

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| 21

PERSPECTIVE

New Economic Development Incentives Replace Enterprise Zone Tax Credits Gov. Jerry Brown persuaded the California Legislature to eliminate geographically-targeted economic development areas [primarily enterprise zones] and replace them with new tax breaks as part of the budget package. Most of these changes were made by AB 93 (Budget Committee; Chapter 69), with a number of modifications adopted by SB 90 (Galgiani; Chapter 70). Both measures were signed into law.

SB 90, the HTC will be available in specified economic development areas largely covered by the existing EZs (except certain census tracts with low unemployment), the two recently

The major tax law changes contained in AB 93 and SB 90 include a sales/use tax (SUT) exemption for specified manufacturing equipment (STEME) and research and development equipment just for biotech companies, as well as a targeted hiring tax credit (HTC) under the personal income tax law (PITL), and the corporation tax law (CTL) for full-time employment in specified geographic areas.

expired EZs located in Antelope Valley and Watsonville, and the six Local Agency Military Base Recovery Areas located in the state, as well as in designated census tracts that have a civilian unemployment rate and a poverty rate in the top 25 percent of all census tracts in the state. Taxpayers from a temporary agency, retail trade services (NAICS Sectors 44 – 45), restaurants or drinking establishments cannot claim the HTC.

The third provision provides for allocating income tax credits through the Governor’s Office of Business and Economic Development (GO-Biz) to assist in retaining existing and attracting new business activity in the State of California.

The credit percentage for all hiring credits is 35 percent per year for five years for qualified wages between 150 percent and 350 percent of the minimum wage (currently between $12 and $28 per hour based upon California’s $8 per hour minimum wage).

Sales/Use Tax Exemption (STEME)

Hiring Tax Credit (HTC)

Full-time employees are required to be paid starting wages of at least 150 percent of the minimum wage (currently $12 per hour) and be hired after Jan. 1, 2014. Employees must work at least 35 hours per week. Additionally, upon commencement of employment, the employee must have met one of the following characteristics in order to qualify the business for the HTC: (a) have been previously unemployed for six months preceding employment with the qualified taxpayer; (b) received the federal Earned Income Tax Credit in the previous tax year; (c) was an ex-offender (defined as a person previously convicted of a felony); (d) have served in the Military within 12 months preceding employment; or (e) CalWORKS recipient or a person receiving general assistance. Continued on p. 24

This provision provides a new hiring tax credit for seven years under the PITL and CTL beginning Jan. 1, 2014 through Jan. 1, 2021 for the hiring of additional, full-time employees in defined geographic areas of the state. Under AB 93 and

Legislative Advocate Aprea & Micheli, Inc.

C A L I FO RN I A G RO C E R

This provision provides an exemption from the state portion of the SUT (worth 4.19%) for certain manufacturing and bio-tech research and development equipment, based upon NAICS Codes 3111, 3399, 541711, and 541712. It applies for eight years commencing July 1, 2014 and concluding on July 1, 2022. Assembly Bill 93 and SB 90 include a cap of $200 million in aggregate purchases per calendar year per business, but there is no cap on the total amount of exemptions that can be claimed statewide among all taxpayers.

CH RIS MICHELI

PERSPECTIVE

Continued from p. 23

In order to qualify for any HTC, AB 93 and SB 90 require that the taxpayer must have experienced a net increase in total jobs throughout the state from one year to the next. And, taxpayers may only qualify for the HTC if it is claimed on the timely filed original return with the FTB. In other words, no credit may be claimed on an amended return. GO-Biz Tax Credits This provision provides an opportunity for businesses to compete for available tax credits based on criteria showing the number of jobs to be created and retained, wages those jobs pay, and a set job retention period. These credits are available for 11 years from Jan. 1, 2014, through Jan. 1, 2025.

C A L I F OR N IA G R OC ER

Under the program, up to $30 million will be allocated in the 2013-14 fiscal year, $150 million in the 2014-15 fiscal year, and $200 million from 2015-16 through the 2017-18 fiscal years. The amounts actually allocated will be subject to restrictions based on the total value of

STEME and HTC claims based upon a total cap of $750 million per year. Twenty-five percent of the credits will be reserved for small businesses and priority will be given to projects proposed for locations in areas of high unemployment, or poverty. Repeal of GTEDAs Assembly Bill 93 repeals the current EZ program effective Jan. 1, 2014, and repeals the small business hiring credit program effective Jan. 1, 2014, which was a component of the 2009 budget deal. Assembly Bill 93 also ends the other GTEDA programs that provide tax incentives for specified activities in areas of the state effective Jan. 1, 2014. Carryover of Existing GTEDA Credits Provisions of AB 93 and SB 90 establish a new 10-year carryforward period for existing GTEDA tax credits in existence as of the commencement of the 2014 tax year. Under current law that expires on December 31, 2013, there is no carryforward limitation on these tax credits. n

CGA EDUCATIONAL FOUNDATION

HALL of ACHIEVEMENT DINNER

AND

LIVE AUCTION

THURSDAY, MARCH 13, 2014

JIM AMEN SUPER A FOODS, INC.

KEVIN ARCENEAUX MONDELÉZ INTERNATIONAL

The Foundation’s Hall of Achievement was created in 1993 to recognize California grocery retailers and suppliers who have contributed substantially to the advancement of the grocery industry.

Proceeds from this event benefit the CGAEF’s College Scholarship and Career Development Tuition Reimbursement Programs. For more information visit www.cgaef.org.

CGA Educational Foundation 1215 K Street, Suite 700 Sacramento, CA 95814 (916) 448-3545 / foundation@cagrocers.com

It’s Time...

to drive sustainable sales.

“People always think that to do the right thing costs you more. That is not true at all. It can actually ignite innovation and lower your costs.” — Paul Polman, Unilever CEO With 82% of consumers currently buying green*, there is a clear opportunity to grow profits while reducing environmental impact. As one of the industry leaders in innovative sustainability practices, we know there is nothing more compelling to shoppers than saving on their favorite brands while helping save the planet. From greener kitchens to water conservation, our earth-friendly programs have increased sales by more than 25%,** so we have the expertise to make sustainable programs a success for your store. Let’s work together to make a world of difference. More green choices for consumers. More green for your registers. To learn more, visit www.sustainable-living.unilever.com *http://www.environmentalleader.com/2009/02/05/82-percent-of-consumers-buy-green-despite-economy **http://inside.unilever.com/global/unileverbrand/Pages/Customer%20Opportunities.aspx **http://inside.unilever.com/newscentre/articles/Pages/Wateranassetmorepreciousthangold.aspx

WHY A STATEWIDE PLASTIC BAG SOLUTION IS NEEDED. California has been the long-standing leader in creation, innovation and progress. Lawmakers and constituents alike often say, “as goes California, so goes the nation,” and for good reason. California is a trendsetter and we often make bold choices that raise important issues to the national stage. But with regards to single-use carryout bag regulation, California continues to try to fix a statewide problem using local tools. “Patchwork,” as it’s commonly referred to, is the continued blitz of local single-use carryout bag ordinances that now encompass nearly one-third of California’s population.

The failure of the State Legislature to pass a comprehensive carryout bag law has increased the pressure on local governments to regulate. Procrastination of glaring policy concerns at times feels like death by a thousand paper cuts as patchwork fixes continue to forge ahead. Most notably, the City of Los Angeles recently passed its bag ordinance. Couple that with the existing Los Angeles County ordinance and you have more than 4 million Southern Californians’ alone who fall under the sweeping movement of a single-use carry out bag regulation. Plus, there are 40 additional jurisdictions committed to, or in the process of, regulating single-use carryout bags in the state — evidence that California is committed to moving forward, rather than remaining gripped in the past. For the California Grocers Association, securing a statewide, uniform standard remains our top legislative goal.

The Association helped improve SB 405’s vote count over prior efforts — garnering 18 votes in the Senate. This was just three votes shy of the 21 needed to pass the bill to the Assembly for consideration. Despite the setback in the Senate, CGA, as well as Senator Padilla, remain committed to reaching a solution that ends the patchwork, while strengthening business efficiency and protecting the environment. The failure of the State Legislature to pass a comprehensive carryout bag law has increased the pressure on local governments to regulate. Nearly every jurisdiction which has, or is, considering regulating bags has formally stated their preference for a statewide regulation. Continued on p. 28

Dane Hutchings Manager, Government Relations, CGA C A L I FO RN I A G RO C E R

This year, CGA partnered with State Senator Alex Padilla (D–Pacoima) to work on SB 405. As with previous state efforts, the bill’s objective is to create a statewide standard that includes all components of the CGA Board approved bag policy. The regulation would cover both paper and plastic carryout bags with the exemption of smaller bags, such as produce and pharmacy bags.

In addition, it will affect all food retailers, but in a timely manner. Components in this legislation model have worked time and time again. It works for business operations and compliance, and it works for those concerned with the impact these plastic bags have on the environment.

GOV ER N M EN T REL ATIONS

Leaving the Past Behind

G O V E R N M E N T R E L AT I O N S

Continued from p. 27

Due to the Legislature’s inaction, local jurisdictions feel increased pressure to act on their own, or face both political and policy blowback from every major stakeholder including business, environmentalists and the general public who believe it’s time to move forward. Putting this most recent delay in passing state legislation aside, the rapid pace and size of local regulations injects new momentum into a statewide single-use carryout bag regulatory effort. It is also important to highlight the decaying status of the opposition. As California business and environmental leaders work hand-in-hand to achieve a statewide solution, only a handful of outof-state plastic bag manufacturers are fighting to stem the tide. The challenge that these out-of-state manufacturers face is that the momentum for this issue is ever-present here in California.

As California business and environmental leaders work hand-in-hand to achieve a statewide solution, only a handful of out-ofstate plastic bag manufacturers are fighting to stem the tide. message that the state no longer wants a patchwork solution — California is ready to move forward and never looking back. As local ordinances’ continue to be enacted, it will be interesting to see how state lawmakers react. The City of Los Angeles’ success in passing a bag ban sends a clear call to action to state lawmakers. If one of the largest city in the country can adapt, so can the rest of California. n

Jurisdictions regulating single-use plastic bags are mounting. This continuous momentum sends the

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C A L I F OR N IA G R OC ER

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Jennifer Hatcher Senior Vice President Government and Public Affairs, Food Marketing Institute

Savour the Victory and Continue to Fight Like Hornets EACH YEAR, THE FOOD MARKETING INSTITUTE POLLS ITS MEMBERSHIP AND ASKS COMPANIES TO RANK THOSE PUBLIC POLICY ISSUES THAT ARE MOST IMPORTANT TO THEIR COMPANIES THAT THEY FEEL FMI SHOULD FOCUS ON — BOTH OFFENSIVELY AND DEFENSIVELY. I don’t have to tell you that an industry with a 1 percent profit margin has a lot of tough issues and that victory or defeat on a particular governmental ruling can make the difference between profitability and failure of a company. It is not easy then for a company to pick the most important issue to their bottom line. However, for those with knowledge of your balance sheet, perhaps it is not a surprise that there is one issue that has consistently ranked at the top of the FMI member-determined priority issue list — the amount supermarkets have to pay in swipe fees. Victory on any public policy issue in Washington, in state capitols or in court brings a smile, but our latest victory in U.S. District Court vs. the Federal Reserve over the swipe fees that were set by the Federal Reserve after the Durbin Amendment brought a really big smile. First, on this issue our side is clearly in the right. It should not cost more to accept an electronic payment than it does to accept a paper payment given the same volume and parameters. The Durbin Amendment set parameters regarding what could be included in a “fair and reasonable” fee and the Federal Reserve disregarded those limitations. Second, in this victory, our opponent was very well respected, professional, and one of the most important institutions to this nation — but the Board of Governors of the Federal Reserve was wrong on how they have tried to implement this law and one of the most respected judges, D.C. Circuit Court Judge Richard Leon, told them exactly that. In rather unequivocal terms, Judge Leon said, “the Board has clearly disregarded Congress’ statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction.”

In the court’s 58-page memorandum opinion, Judge Leon stated, “It appears that the Board completely misunderstood the Durbin Amendment’s statutory directive and interpreted the law in ways that were clearly foreclosed by Congress.” U.S. Senator Dick Durbin (D-Ill.), author of the swipe fee legislation, concurred with Judge Leon’s decision and in a statement identified the court’s ruling as a “victory for consumers and small business around the country.” Those who have followed this issue for years know that even big victories like this one require cautious optimism and continued vigilance — right after one victory lap and a little reflection on the impact that a tenacious underdog can have. I remember a trip I took to New York for an analyst meeting prior to the first vote on the Senate floor for the Durbin Amendment to provide relief to retailers for excessive swipe fees.

WA S H I N G T O N R E P O R T

Analyst meetings are generally not an experience I would wish on anyone, but it was important to make sure our industry’s perspective was represented. I remember my thinking, as skeptical New York bank analysts peppered me with questions about why and how I thought our side could win the necessary votes. I asked the analysts if they were familiar with hornets’ nests.

Our path to victory the first and the second, and now the third time on this issue was because our members were and are madder than hornets — keep stinging, mobilize the entire nest and don’t let up. I told them that hornets, unlike bees, can sting their prey multiple times, as they do not die after stinging. Also, hornets can mobilize an entire nest against their prey. Our path to victory the first and the second, and now the third time on this issue was because our

members were and are madder than hornets — keep stinging, mobilize the entire nest and don’t let up. There is much to lose in the way of easy money to the largest banks on this issue, so they will continue to press their case and will certainly try to fight us in state capitols, Congress and the courts. We have to remain vigilant, alert the entire nest when a threat is detected, and recognize that it is going to take a lot of well-coordinated stings to finish the job. We have been lucky to have determined leaders in this cause on the Hill — Senator Durbin, Congressman Peter Welch (D-VT), and now Judge Leon whose colorful opinion in this case shows both his anger and concern. The Federal Reserve has announced it will be appealing Judge Leon’s decision. Our industry will have yet another battle to fight in the Appeals Court, but we are on the right side of this issue with great leaders and a whole nest of advocates ready to swarm. n

C A L I FO RN I A G RO C E R

| 31

WASHIN GT O N R EP O RT

A Contentious Battle: Food Stamps AS THE ECONOMY CONTINUES TO SLUGGISHLY GROW, THE MOST PARTISAN CONGRESS IN RECENT HISTORY CONTINUES TO DO EVERYTHING BUT LEGISL ATE â&#x20AC;&#x201D; WITH AN APPROVAL RATING OF AROUND 12 PERCENT. The recent defeat of the House Farm Bill which has historically been a tradition of bipartisan agreement marrying both rural and urban interests appears to be over, and in a larger sense, represents the general political divide in Congress as it relates to many issues across the board. While many government programs have seen tremendous growth since the economic downturn, the Supplemental Nutrition Assistance Program (SNAP), which makes up nearly 80 percent of the Farm Bill, has grown to be one of the largest mandatory funding sources in the budget. In just a few short years, SNAP went from serving 26.5 million people at the cost of $30.2 billion in 2006, to serving 46.6 million people at the cost of $74.6 billion in 2012, in part due to loosening of benefits, general increased need of assistance due to the recession, and higher food prices. The number of SNAP participants has begun to level out, and the Congressional Budget Office projects that SNAP participation will begin to decline in 2015, and return to near pre-recession levels by 2022.

C A L I F OR N IA G R OC ER

Peter Larkin President/CEO National Grocers Association

Despite this, SNAP has been a point of contention for both Republicans and Democrats who have fundamentally different ideas about the size and growth of government. Some lawmakers view SNAP increases as indicators that the program is out of control and must be cut back, while others attribute recent growth to a successful program working as designed, to increase benefits in times of need. While the Senate-passed Farm Bill made $4 billion in cuts to SNAP over 10 years, the House bill was defeated because $20.5 billion in SNAP cuts over 10 years were not deep enough for many conservatives. The House is soon expected to offer a nutrition bill which cuts nearly $40 billion over the next decade. However, recent attention from conservatives over SNAP goes far beyond funding. While the National Grocers Association (NGA) helped handedly defeat a SNAP reporting amendment in the

House Farm Bill, which saved grocers from bearing additional costs and burdens, such proposals are increasing in popularity, especially among conservatives seeking to drastically change the program.

Since most SNAP programs are governed by continuing legislation and are exempt from sequestration, SNAP will continue to operate even if Congress fails to pass a farm bill, though retailers should soon anticipate some changes. With proposals ranging from singling out what SNAP participants can buy to fundamentally changing the structure of the program through block grants to imposing new cost and administrative burdens on grocers, fights over food assistance are only likely to intensify as budgetary pressures become more pronounced, making the future of the Farm Bill all but certain. Since most SNAP programs are governed by continuing legislation and are exempt from sequestration, SNAP will continue to operate even if Congress fails to pass a farm bill, though retailers should soon anticipate some changes. Beginning Oct. 1, 2013, and Nov. 1, 2013, respectively, food stamp recipients may experience changes to their SNAP benefits due to Cost of Living Adjustments, and American Recovery and Reinvestment Act sunsets. These changes may cause confusion to participants at the check-out counter and will likely impact your sales. NGA continues to work closely with the U.S. Department of Agriculture on this important issue and continues to advocate for the independent grocer. Visit www.nationalgrocers.org/nutrition to find out more information about SNAP, particularly as it relates to upcoming changes, and please help spread the word by sharing this information in your stores with your customers. n

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Q&A

Q&A: George Runner, California State Board of Equalization ELECTED IN NOVEMBER 2010, GEORGE RUNNER REPRESENTS THE 2ND DISTRICT OF THE BOARD OF EQUALIZATION. HE REPRESENTS MORE THAN 9 MILLION CALIFORNIANS AS A TAXPAYER ADVOCATE. PRIOR TO HIS ELECTION TO THE BOARD, RUNNER SERVED 12 YEARS IN THE STATE LEGISLATURE.

What is the California State Board of Equalization?

implements tax laws and administers A. The moreBoard than 30 tax and fee programs, including sales and use tax. I nterestingly, California is unique in that it is the only state with a directly elected tax board. dditionally, the Board hears taxpayers’ A appeals, including those relating to corporate and personal income taxes.

Q. How do you view your role as an elected tax official? A.

I see my role as a taxpayer advocate for the constituents I represent. My district is very large; it stretches from the Oregon border all the way to Los Angeles and includes much of the desert and mountain areas of inland California. very day my staff and I help taxpayers navigate E bureaucracy that at times seems intimidating. Our goal is to ensure that taxpayers are treated fairly. We want them to pay the right amount of tax owed — not too little, but also not too much.

are some practical ways you’re able to Q. What help taxpayers?

A. There are a number of ways my office can ensure taxpayers are treated fairly and reasonably. These include engaging with staff, assisting with legal opinions, reviewing audit findings, expediting refunds, returning security deposits, and reversing unfair penalties.

George Runner

e also offer free personal tax consultations W to those starting, or operating, a business in California to help them avoid tax problems in the future. It’s not always easy to determine which items in a store should be taxed and which are exempt. We want new businesses to get on the correct path from the beginning, and we’re also available to help all businesses that have questions. o provide the best possible service, I have T on my staff BOE’s former supervisor of the Computer Audit Specialist Program, and a former manager from the Board’s Tax Policy Division. Their expertise enables me to engage staff and address taxpayer concerns with respect to fairness and equity in audits, collections and many other matters. Continued on p. 36

Our goal is to ensure that taxpayers are treated fairly. We want them to pay the right amount of tax owed — not too little, but also not too much.

e don’t want taxpayers getting caught up in W tax traps. We want them to be successful, and we’re here to help.

C A L I FO RN I A G RO C E R

he best and most cost-effective way to do this T is through voluntary compliance. Most taxpayers want to do the right thing, but sometimes they need our help to understand their obligations or to get through a difficult time.

nfortunately, and as I’m sure California’s U grocers know all too well, it’s difficult to do business in our state. To be successful, businesses must navigate many complicated tax laws and regulations. Even the smallest mistake or oversight can result in significant penalties.

Q&A

Continued from p. 35

I n one instance, staff had penalized a company in my district nearly $1 million for failure to pay about $8,000 in taxes. I pressed staff to review this case. A close review of the underlying statute revealed that staff had misapplied the penalty formula. I met with our Chief Counsel, and we were able to reduce the penalty of almost $1 million dollars down to a more reasonable $2,000. As a result of our assistance, this company stayed in business, and its employees kept their jobs.

What “tax traps” do taxpayers fall into most often? What, if anything, can be done to help taxpayers avoid these common mistakes?

cases that come before the Board involve A: Many disputes that taxpayers might have avoided if they had known certain important facts sooner. or instance, sometimes taxpayers fail to keep F adequate business records. In these cases, BOE auditors may use industry norms to estimate a tax liability. When a business owner

It’s not always easy to determine which items in a store should be taxed and which are exempt. We want new businesses to get on the correct path from the beginning, and we’re also available to help all businesses that have questions. doesn’t retain adequate records, it is difficult to challenge staff estimates, even when they seem too high. ometimes business owners unknowingly S inherit a large tax liability when they buy a business, because they were unaware that they need to request a tax clearance from BOE prior to finalizing the sale. It’s often unfair, but under state law these new owners can unwittingly get stuck with what’s called “successor liability.” nother tax trap is that corporate officers A can be personally liable for their company’s outstanding tax liabilities. These “dual determinations” can be issued to former employees, even after a company goes out of business. ast but not least, the under collection of L sales tax can be a major problem for retailers because it may be years before the oversight comes to an auditor’s attention. The resulting tax liability, penalties and interest can be very large — and a business may have to absorb the full cost on its own.

C A L I F OR N IA G R OC ER

he best way to avoid this tax trap is to request T advice from BOE in writing (visit www.boe. ca.gov/info/email.html) whenever there is doubt about an item being taxable. Keep the written advice for your own protection.

egardless of whether your business is large R or small, contact my office at (916) 445-2181, or (661) 723-8469, whenever you need assistance. For additional information, visit www.boe.ca.gov/Runner. n

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The New

CONSUMER The seismic shifts brought about in American society and consumer culture in the past five years cannot be underestimated.

THE NEW CONSUMER

MARIAN S ALZMAN

The changes in the country’s collective mood and mindset between 2008 and 2013 completely dwarf the evolutions that took place between 2003 and 2008, or 1998 and 2003. They’ve made themselves known throughout all aspects of American mood and behavior, but they’re often especially pronounced where shopping is concerned — shopping for splurges and discretionary purchases (or not shopping, as the case may be), and shopping for everyday necessities, which can’t be done without, such as groceries.

The big shifts can be distilled and traced to two very broad, concurrent trends: the Great Recession — which gave rise to double-dip frugality, renaissance of austerity and new normal of doing more with less — and the incredible ascension of digital technology and social media — which revolutionized the way all shopping gets done. They have empowered Continued on p. 40

THE NEW CONSUMER

C O N TI NU E D

Continued from p. 39

consumers to arm themselves with information and crowdsource decisions while giving retailers all sorts of new tools to connect with customers — and hold them to higher and higher standards of accountability. But now the financial picture is far blurrier than it was five years ago. In a world of 7 billion people, it’s hard to get a coherent picture of where things really stand economically. While millions of everyday consumers struggle to afford the rising cost of basic food, millions more happily shell out for new electronics. Still, poverty has become a stubborn trend, with more than 22 million American households alone — more than 46 million people — on food stamps. Millions more are still worried about losing their jobs. Since the economic crisis that knocked the world offbalance in 2007-08 and the uncertain, hesitant sortof recovery that has followed, millions of people in North America, Europe and beyond have seen life get tougher — and far more confusing. Money is tighter, jobs are more precarious, safety nets have started looking threadbare, and the world seems pretty wild. In companies, the talk is now all about engagement, teams and culture.

C A L I F OR N IA G R OC ER

In public life, people are looking to strengthen their local communities. In private life, empty nests are filling again as multiple generations gather under the same roof to collaborate, pool resources, and share financial, practical and emotional support.

And not insignificant to folks in the grocery business, people started eating more at home — not just cooking for their extended cohabiting families, but also entertaining at home instead of going to restaurants. While the ranks of food stamps recipients grew, weird weather led to scarcity, commodity prices rose, and too many Americans faced hard choices about how to spend their grocery dollars, another group redirected their abundant discretionary dollars toward dining in (the most lavish meal at home is still likely to cost less than the average restaurant tab). The dinner party became the food world’s staycation. The tougher economy has also reduced people’s knee-jerk impulse to use retail therapy as a feel-good

Marian Salzman has been named one of the world’s top five trendspotters. Her presentation “The Trends Shaping Today’s Major Changes for News, Brands, Retailers and Cultures” will open the 2013 CGA Strategic Conference. option. It has prompted them to think what makes life worth living and to realize that there’s pleasure, satisfaction and security in doing things together. And what’s more pleasurable, satisfying and securitycreating than preparing food and sharing it with loved ones? That’s just one real-world manifestation of what social research has been showing for a long while: People need many social and community connections to thrive as individuals; individuals flourish when they make choices that benefit their connections with other people. Home-cooked food quite literally nurtures those connections. Feeding your friends and family becomes the ultimate reassurance in uncertain times. What follows is a list of more specific ways those two large trends have revealed themselves in the world of shopping and consumption, with a particular focus on how they affect the brands and companies, such as grocers, that people depend on for their daily needs. 1. The New Value. Between a diminished set of circumstances for some and a hesitancy to engage in showy “conspicuous consumerism” for others, consumers are paying new attention to their economic and financial decisions. They’re looking for the cheapest deals on everything, trawling the Internet for coupons or clipping them from papers the old-fashioned way, warming up to stores’ private-label products instead of more established brand competitors. Thanks to the Internet, comparison-shopping has never been easier. But “value” doesn’t necessarily mean the lowest price — there’s also a yearning for things and experiences that feel valuable. Consumers want to believe that their money (whether used for organic local strawberries, generic flour or humanely raised beef and dairy products) was wisely and well spent. Continued on p. 42

Craft Every Moment.

THE NEW CONSUMER

C O N TI NU E D

Continued from p. 40

2. Frugal Consumption. For many people who have the money, big-ticket spending is still out of style. And for the rising generation of Millennials, unlike their predecessors, they just aren’t buying cars or big homes in sprawling suburbs where cars are essential; they want smaller places closer in, near transportation hubs, and venues where they can shop and eat out. Millennials aren’t rejecting the comfort, convenience and other benefits of modern life; along with many older people, they are simply finding that they don’t need to own something outright (apart from tech gadgets) to enjoy its benefits. In the grocery world, that translates to less filet mignon and premium seafood, and more humble ingredients. (Does anyone need to be reminded about lowly kale’s path to superstardom? A new book, Fifty Shades of Kale, leaves little doubt about the new sex appeal of the earthy green.)

3. The Conscious Consumer. The economic climate is shaky; the actual climate is even more unstable. At the crossroads of these two issues sits the conscious consumer, who wants to feel that he or she is doing good in the world while doing well for themselves through his/her spending choices. But at the same time, they’re struggling financially, too, so they need to be confident that they’re also getting a good deal. That’s the crux for the retailer: how to make consumers feel good about what they’re buying and the price they’re paying. If retailers can crack that nut, they will find a new field of consumers waiting for them. The clearest manifestation of this in grocery stores is the arrival of local produce on chain-store shelves (not just Whole Foods, but Costco and Wal-Mart) as consumers buy in to the power of community in these post-financial meltdown times and want to support their local farmers, limit their carbon footprint and enjoy the taste of fresher food. There’s also the push for organic and non-GMO ingredients — and the pushback as consumers learn that vague labels such as “Made with organic ingredients” aren’t really promises of wholesome goodness, and as the food industry releases articles and information about the safety and necessity of genetically modified food.

4. Curation, Storage and Recycling. Shopping was once sport, a respite from the everyday humdrums. Now watch people cluster their shopping into grazing, acquisition of renewables, essentials gathering, indulgences, and metered prowls in big-box grocery stores in an ever-vaster online universe where store openings happen on schedule. Meanwhile, assembling a meal has become less about buying lots of expensive items and more about curating a short list of deliciousness. 5. M-Commerce on the Rise. Mobile commerce encompasses both buying transactions that are completed on a smartphone and mobile retail units (such as food trucks) as brands strive to reach

C A L I F OR N IA G R OC ER

Taken to the extreme, unless grocery retailers make a real attempt to reassure these consumers, they could lose some of their business to farmers markets and backyard gardens.

Continued on p. 44

C A L I FO RN I A G RO C E R

THE NEW CONSUMER

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Continued from p. 42

pay for a monthly share of a farmer’s haul. But they won’t do any of it alone. They’ll do it with an entire network and social community behind them. 7. The New Dapper. One mantra for today’s fashion business might be “Men don’t shop; they buy.” Menswear accounted for 40 percent of the total luxury fashion market last year, growing 14 percent, compared with womenswear, which grew by just 8 percent. In Australia, the post-recession recovery phase paired with Gen X’s concern with its appearance has ushered in a profit surge in the menswear sector. And bold design is in, as are dapper, slim-fit suits in anything but black. A focus on prying open purses might see a big switch to murses instead. While this might seem less relevant to grocery retailers, it’s still worth paying attention to, because the same men who are carefully shopping to outfit their personal appearance will soon also be likely shopping meticulously to trick out their refrigerators — putting on a good appearance when hosting a dinner party.

consumers wherever they are. Mobile is going to continue to flourish with customers of all generations and life stages. FreshDirect, a home delivery system the operates in several East Coast metropolitan areas, is only the beginning. The ability to do just about anything from the palm of your hand is only going to increase over the coming years.

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6. Shopping Going Social. Social shopping will also become more prominent. Would-be buyers can easily crowdsource their shopping decisions, not just in curating outfits but also in asking family members what they’d like to eat for dinner or what treats to stock up on in the house.

The consequences will be especially severe for stores that fail to see the value of creating a positive customer service experience. Bad customer service will lead shoppers back to their phones to post unfavorable reviews on apps, or sites such as Yelp, and to retreat to online shopping, as found on FreshDirect, from the comfort of their homes. Or, they’ll go even further, finding a communityminded means of shopping by joining a CSA (community-supported agriculture), for which they’ll

8. Fast Fashion. The average American buys 64 items of clothing each year, according to Elizabeth Cline in her book, Overdressed, spending roughly $1,100 (just 3 percent of this goes to American-made clothes). It’s called fast fashion, and all those $10 tank top sales add up; the parent company of fast-fashion pioneer Zara posted a 22 percent gain in profits in 2012, thanks to new stores opening globally and a heavy push in online retailing.

The average American buys 64 items of clothing each year, according to Elizabeth Cline in her book Overdressed, spending roughly $1,100 (just 3 percent of this goes to American-made clothes). Some lambast fast fashion for its deleterious effects on the garment industry and its disposable quality. These critics believe we’d be better off investing in clothing that costs more but lasts longer; supporting local designers, seamstresses and tailors; and taking care of and repairing items of clothing rather than tossing them (calling all conscious consumers!).

THE NEW CONSUMER

While again this might seem less relevant to grocery retailers, the same want-it-now trends can apply to new and innovative food products. 9. Rise of the Babynistas. First came babyccinos and iPad apps for infants; now the demand for designer baby clothes is high — children’s apparel grew faster worldwide than women’s apparel in 2011. Burberry posted $118 million in revenues for clothing for children in 2012-13, a 9 percent increase over the previous year (which was up 23 percent from the year before that). Celebrities are jumping on the baby-fashion wagon, too. Tori Spelling just released Little Maven, a new line of children’s clothing for J.C. Penney, and Heidi Klum has partnered with Babies R Us for her Truly Scrumptious kids line. Not to be outdone, Fendi, Gucci, Marc Jacobs, Marni, Missoni, Oscar de la Renta, Roberto Cavalli, and Stella McCartney are all trying their hand at children’s clothing.

And you can bet that the parents who are spending the money to outfit their children in such luxurious outfits are also investing in their children’s health; from organic baby food to grass-fed beef, parents aren’t about to stint on their offspring’s nutrition. 10. Still Luxe After All These Years. Not just for children, luxury consumption is on an ever-upward trajectory, as the 1 percent still wants to spend and emerging markets (China, Brazil, etc.) look for bling to buy. Sales of caviar have shot so far through the roof that fishing is banned in many countries, which in turn has led to the cultivation (and marketing) of new sources for the prestigious fish roe. The highlow lobster roll mashup has remained a summer staple for years, even as the price of the crustacean has swung widely. n Marian Salzman (@mariansalzman) is CEO of Havass PR and a leading trendspotter (www.mariansalzman.com).

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Millennials — Your Most Influential Shopper RETAILERS ACROSS THE COUNTRY ARE PLAYING A HIGH STAKE GAME FOR WHAT SOME SAY IS THE MOST LUCRATIVE, AND ELUSIVE, CUSTOMER IN HISTORY — MILLENNIALS.

MILLENNIALS

BY LEN LEW IS

There’s no dispute over the size and spending power of this group as they get older, settle into full-time jobs, raise families and do all the things that their parents — the Baby Boomers — did before them. But the M-generation is now 80 million strong, according to a recent study by Accenture and responsible for $600 billion in annual spending — a figure that is expected to double by the year 2020 when they will represent about 30 percent of retail sales. But what makes Millennials tick and shop, and are they really different from past generations? These are just some of the questions being explored by Jason Dorsey of the Center for Generational Kinetics and a featured speaker at this year’s CGA Strategic Conference.

Retailers must recognize that there are several key differences between Millennials, Gen-Xers and Baby Boomers, according to Dorsey.

“There are a combination of factors that affect Millennials’ grocery purchasing, including the economy, employment, wages, and credit,” Dorsey says. “But retailers have to really assess how and where Millennials prefer to buy, and when they actively make grocery decisions.” This latter part is important, Dorsey says, because if you’re 26 and living with your mom, your influence over grocery decisions is very different than if you’re 26, married with a toddler, and living on your own. “The size and type of stores they shop varies depending on which segment of Millennials you’re studying,” he explains. “There are also differences between those who live in urban, or rural areas. But generally, they want stores that are easy to navigate, with knowledgeable employees, mobile device integration as well as a store that makes a connection with the community.” Continued on p. 48

“On one level, there is the frequent sense of entitlement and delayed adulthood,” he says. “We

Whether growing up in a recession and having careers thrown off track by the economic downturn may, or may not, impact their attitudes.

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“We’re talking about the most diverse group ever faced by U.S. retailers,” Dorsey says. “More of them have college degrees than any previous generation and, as customers and employees, they bring with them entirely new attitudes. Depending on how retailers respond, they can be a challenge, or just frustrating.”

find that Milllennials can be broken down into two distinct groups. One segment is taking the traditional steps, albeit at an older age, and the other is not gaining traction in many real world transitional steps.”

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Like most generations, Dorsey says, Millennials will try a new store based on proximity, direct marketing or indirect buzz. But, he adds, getting them in the store is only the beginning, The key is getting them to come back to shop with friends. “You need to be more than a place to buy quality food,” Dorsey says. “You have to provide an experience that connects them to a bigger purpose or mission — whether it’s health, family, community, or savings.” A recent report by Accenture echoed these thoughts in that they want a customer-centric shopping experience — one tailored to their wants and needs. And, according to the report, they want to feel welcomed when they go to the store. In describing the ideal shopping experience, a Millennial noted, “There is [something] about the product and its cost, but there’s also a big part about being treated like a valued customer.” Dorsey notes: “The bottom line is that when Millennials find a store they like, they will talk about it on social media. And thanks to mobile devices, they’ll talk and buy items online while they’re shopping. Therefore, integrating a quality mobile experience into the retail space is the future. Millennials will be the first generation to make this an expectation.” However, Dorsey adds that Millennials are no more difficult to attract then other demographic groups.

“Quite simply, what attracts them is just different than what grocery stores are used to offering or designed to provide,” he says. “I know that change doesn’t come easily for many companies, but you have to recognize the need to adapt.” This not only means better in-store experiences, but also driving sales through online sites. “Millennials buy more and more online every year, thanks to increased use of mobile phones,” says Dorsey. “This is a conditioned behavior which actually makes it abnormal not to buy certain things online.

“You need to be more than a place to buy quality food,” Jason Dorsey says. “You have to provide an experience that connects them to a bigger purpose or mission — whether it’s health, family, community, or savings.” “At the same time our phones are beacons to the world around us and Millennials use this technology to enhance the shopping experience before, during and after the sale. Our phone is our portal to the world and we want the in-store mobile experience to surprise, delight, inform, and connect,” he says. Additionally, Accenture research shows that Millennials are not only transforming their own shopping behaviors, but those of their parents, who are increasingly mimicking the demands of their children for seamlessness as they climb the digital learning curve. However, evidence has surfaced indicating that Millennials are not as big on online spending as previously thought.

“Millennial shoppers have the lowest conversion rate because they are the most selective, as well as the most economically challenged, according to the report,” the study says. “Previous generations were more impressed by marketing and advertising strategies. With this group you have to grab their attention in and out of the stores.”

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A recent study by the NPD Group noted that the bulk of their retail purchasing — 81% — is in store rather than online.

Continued on p. 50

25g OF PROTEIN ** AIDS IN RECOVERY PROVIDES ENERGY

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A study by Accenture agreed that despite this being a truly digital generation, Millennials are not all about online shopping and, in this respect, are remarkably similar to their Gen X and Baby Boomer counterparts. Among the findings: n

More than half of respondents in all three demographic groups (55%) said they seek out the cheapest return options.

Forty-one percent practice “showrooming” by examining merchandise at a local retailer then shopping online for the lowest price. This is directly attributable to higher penetration of smartphones.

Thirty-six percent will buy from a retailer’s website if they want a product when the company’s stores are closed.

On average, 89% said access to real time product availability information influence which stores they shop.

Additionally, interviews conducted at one of America’s largest shopping malls confirmed survey findings that many members of the digital generation actually prefer visiting stores to shopping online. Echoing generations of shoppers, one Millennial said of the shopping experience: “You want to touch it; you want to smell it; you want to pick it up.” But the question is, do they know how to cook it? A number of surveys indicate that Millennials lack the cooking skills of their parents.

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“On the whole,” Dorsey, a self-professed Millennial says. “We do lack those skills. Many of us did not cook with our families growing up and many are getting married and having kids later in life. They have focused on communal lifestyle living, like eating out with friends.

However, this pendulum will swing back as Millennials transition into more traditional adult roles.” The traditional role of advertising and marketing is another area for retailers to watch. “Whether Millennials have more confidence in brands than private labels depends entirely on positioning and messaging,” Dorsey says. “Millennials are the

“Whether Millennials have more confidence in brands than private labels depends entirely on positioning and messaging,” Dorsey says. “Millennials are the most advertised to generation in history, but are not necessarily the best informed.” most advertised to generation in history, but are not necessarily the best informed.” As such, many seek personalized, targeted promotions and discounts as the price for their loyalty. “We found that 95 percent or more of Millennials want their brands to court them actively, and coupons sent via email, or mailed to their homes have the most influence on them,” he says. “Other channels, such as text messages, have an influence on just over half of all respondents in terms of their shopping behaviors.” Here, social media again comes into the picture with surveys indicating that Millennials view Facebook and other sites differently than many marketers may assume. While clicking on a social network page icon might indicate that they consider a retailer or brand cool or hip, that doesn’t necessarily mean they are loyal customers. “I really don’t follow my retailers on Facebook or Twitter,” said one survey respondent. Instead, they view social media relationships with brands and retailers as transactional — a way to get the best deals. To reach Millennials on social media, a brand or product must become a routine part of their conversations concerning product information, updates and special offers. “The goal should be to create positive buzz, to be talked about by Millennials,” Dorsey concludes. “Simply having a presence on social media isn’t enough — the aspiration should be to become the topic of conversation for all the right reasons.” n Len Lewis is editorial director of Lewis Communications, Inc., a New York-based editorial planning, research and consulting firm. He is a contributor to several retail publications and trade groups in the United States and Europe and has been a speaker and moderator at numerous industry events. He can be reached at lenlewis@optonline.net or via his website www.lenlewiscommunications.com.

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OMNI-CHANNEL RETAIL…

The Future of Retailing is Here

The journey of creating a seamless integrated selling experience for shoppers across in-store, online and mobile is just beginning. While retailers recognize the value of connecting all of the brand touch points together, as the old saying goes, “It’s easier said than done!” Given the potential for greater sales, share of stomach and shopper loyalty, retailers must embrace this new Omnichannel way of doing business. This article will provide clarity and definition into Omni-channel retailing, insight into how retailers are leveraging e-commerce and social media, the mobile evolution, and provide a new organizational blueprint retailers should consider in a new Omnichannel world.

Omni-channel — What is it? Needless to say, business as we once knew it has evolved well beyond the local grocery retailer, to a dynamic and fluid landscape of food being everywhere, prepared and delivered when, where and how you want. Omni-channel retailing provides retailers with the opportunity to enhance their brand, extend even further into the community and expand shopper reach. Continued on p. 56

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CRAIG ROS ENBLUM

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Given the dynamic nature of technological change and evolving competitive landscape, retailers must focus on quantifying the value and returnon-investment of their technology and resource spending (including pilots and trials), and translating their efforts and investment into sales and profits. One of the best examples of a retailer who recognizes the power of Omni-channel retailing is Starbucks. Howard Schultz, CEO, recently stated, “The fly-wheel affect we have created across my Starbucks Rewards loyalty card, our mobile app, adjacent extension of our core brand beyond coffee (to tea, juices, food, and yogurt) and continually enhancing our store environment (wireless charging and Wi-Fi) has enabled us to further adapt and satisfy our shoppers needs throughout the day, 365 days a year!”

Craig Rosenblum is a partner at Willard Bishop Consulting, and will lead a Share Group Discussion on e-Commerce at the 2013 CGA Strategic Conference. and the rumors of potential brick and mortar stores. Additionally, it appears with Walmart’s efforts to provide total price transparency (same price in-store and on-line), show-rooming will climb to a whole new level. While the behemoths battle it out for supremacy, other retailers are not sitting idly by. Some examples of what others are working on include: n

Endless Aisle — The ability to provide a shopper with any product they desire, even though it may not be carried in the store. Shoppers can peruse an endless assortment of products and pick up in store or or have it delivered to their homes. This provides retailers with a greater service connection, ensured availability and better in-stock position.

E-Coupons and Discounts — Understanding the battle for “value”, retailers continue to ramp up ways to provide shoppers with coupons. One of the ways retailers have been trying to

E-Commerce and Social Media You don’t have to look any further than the battle that is taking place between Walmart and Amazon to realize how important e-commerce is to the future of retailer success.

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Walmart continues to invest in mobile and online technology in order to increase customer engagement and drive their +30% online sales increase in the second quarter. Amazon continues to invest in expanding its distribution and home delivery network

Continued on p. 58

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provide these values, at no or minimal cost to them, has been to link up with Coupons.com, Zavers, Retailmenot, and SmartSavers, to name a few. Recognizing that retailers need to control their brand(s) and maintain their single point of interface for their shoppers, several leading retailers have chosen to build the infrastructure that can collect coupons from all sources instead of using one of these providers. n

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Facebook, Twitter, Instagram, and Pinterest — All have become the ultimate in billboarding and viral marketing. While it may be all about “Likes,” or number of followers, these have become mechanisms for promotion, the new community bulletin board and a way to enhance brand image. One example is Target’s $5 Million for Education promotion on Facebook. The goal of the program is to rally communities across the country in support of education. Individuals go to Target’s Facebook page and vote for the school of their choice. Once a school receives 25 votes, Target will donate $1 per vote up to a maximum of $10,000. Virtual Store — Retailers continue to focus on ways to make the shopping experience more convenient and more enjoyable for today’s consumer. Therefore, given today’s Omnichannel desire, brick-and-mortar stores are trying to provide a digital experience and e-commerce providers are trying to provide a brick-and-mortar experience. Here are examples of how two leaders are trying to address this issue. Peapod — Has launched a virtual marketing campaign — “Shop Anywhere, Anytime with Peapod.” This has coincided with a roll out more than 100 virtual grocery stores at commuter rail stations in Chicago and along the East Coast. The campaign utilizes a QR code to download the free Peapod mobile app, enabling shoppers to shop on the go. CVS — The national pharmacy chain has launched a new iPad app that provides a virtual 3D store. It enables you to tap and shop endless aisles, swipe your way rewards and coupons and load to card, and refill prescriptions.

It’s All about Mobile Most think the first mobile PDA was the iPhone, launched in January 2007; it was actually the Nokia smartphone launched almost 11 years earlier in 1996. According to the latest Pew Research survey, 91 percent of all adults in the United States own a mobile phone and 56 percent of American adults have smartphones. Given these facts there is no doubt that the mobile device is ubiquitous and the way we will not only communicate but conduct business in the future. Three areas where it has begun and will continue to effect retail are: n

Digital Coupons and Offers — Shoppers are being inundated with choices and ways to save at retail. Shoppers receive savings and discounts from websites (retailer’s own and beyond), loyalty cards, kiosks, store ads, mobile coupons, paperless coupons, social coupons, gas rewards, and more. Retailers must make it easy for a shopper to save in their stores.

While many have tried to do away with the paper coupons by loading discounts directly to the card, not all shoppers have cards and infrastructure Continued on p. 60

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enhancements are usually quite costly. Retailers need to determine where they are in their loyalty strategy and approach, review technology requirements and understand how to best serve their shoppers. Although Millenials may be your ideal or future shopper, Senior Citizens and Baby Boomers may not be as technologically savvy.

One solution appears to be what Weis Supermarkets is doing with their Preferred Shoppers Club. Simply select your desired coupons on their website and they are added to the cardholder’s account and automatically redeemed at checkout with club card or I.D. number presented.

Check out — Despite retailers adding more cashiers, guaranteeing short wait times and adding self-checkout lanes, shoppers still feel they wait too long at check out. Several retailers, beginning with Stop & Shop SCAN IT, and now Walmart’s Scan and Go, are trying to expedite the checkout process by using your smartphone and providing a better shopping experience.

Walmart has made several improvements to selfscanning, such as; computerized scales which distribute barcodes to be scanned, everything you scan goes into a list, keeping track of item cost and total spend. The list then uploads from your phone at a Scan and Go checkout station, pay and you are on your way.

Payments — Retailers continue to be dissatisfied with credit cards and their fees. One potential solution to rectify this issue will be e-wallets. While e-wallets are the wave of the future, the ever-growing multitude of mobile payment options and shopper concerns over security are going to prevent shoppers from abandoning their traditional payment methods and using smartphones instead. One such system that appears to have found a solution is LevelUp (www.thelevelup.com). LevelUp is designed to securely store your credit card information, and provide discounts and rewards for you to use.

As one grocery retailing executive recently said, “Once we figure mobile payments and my driver’s license becomes digitized, I will no longer carry a wallet!”

The New Blue Print Today’s global economy and Omni-channel environment have created more opportunities for growth and personalization than I am sure anyone has imagined. Unfortunately, this new highly competitive landscape has left most retailers with technology, personnel and an organization designed for the past not the future. While many believe, we just need to infuse the category management process with shopper data, this will not be sufficient to deal with rate of change and the magnitude of competition e-commerce will continue to create. What retailers need is a new blueprint which turns the organization into one that is interdependent, not independent, when making strategy and tactical decisions. The organization of the future will consist of: n

“Any Shopper” understanding and how shopper needs intersect with my overall company/brand/ banner strategies and tactics.

Cross-organizational understanding and decision making — Marketing, IT, Merchandising, Operations, and Supply Chain must work in concert.

Modified organization design, processes, analytics, and training — Decisions will be fact, not intuition based.

The Omni-channel world is upon us, the rate of change is going to continue and e-commerce share of sales will only continue to grow. n

Multi-faceted (beyond sales, brand, supply chain, etc.) supplier collaboration involvement and resource utilization.

Integrated in-store, e-Commerce, Social, Mobile and Digital solutions and communication â&#x20AC;&#x201D; â&#x20AC;&#x153;One Voice, One Company.â&#x20AC;?

Technology and infrastructure which enables an Omni-channel shopping experience, access to data, analytics, and reporting.

Next Steps The Omni-channel world is upon us, the rate of change is going to continue and e-commerce share of sales will only continue to grow. Those who want to be successful are going to have to adapt to change and provide shoppers with the personalized experience they desire. It is going to take multiple forms of engagement to be successful and robust analytical processes to ensure retailers are obtaining value from your investments. If you want a case study, just look at Staples, they went from a dying bricks-and-mortar store, to putting their catalog on-line and now being one of the top five companies in internet sales. How did they recognize this and another major catalog based company Sears/K-Mart did not? n

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1206 CA GrocersAd-Fall

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12:01 PM

Page 1

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Give Customers a Variety of Sweetener Choices.

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REALITY CHECK

AMBER W ILLIAMS

REALITY CHECK Three Realities the Grocery Industry is Facing With the Rise of Millennials. By now, you’ve heard of the Millennials. At more than 85 million strong, they are the next generation of customer, and they can’t be ignored. You may even know some of the things they are passionate about — food, cooking, exotic flavors, health, adventure, sustainability, philanthropy, social media — that are driving trends through every industry. CPG brands like Campbell Soup Company with their uniquely flavored and packaged “Go Soup” line; Hamburger Helper — now just Helper — with a new look, message, and flavors; or Hot Pockets with revamped products featuring “premium cuts of meat,” “seasoned crusts,” and “real cheese,” are making swift and deliberate attempts to appeal to Millennials. However, they can get these products almost anywhere. So, what can you do to capture Millennials’ attention and keep them coming back to your store? Here are three realities the grocery industry is facing with the rise of the Millennials, and what some are already doing to connect. Continued on p. 68

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values and attitudes, but the chain is embracing this happenstance to everyone’s advantage. They’re clear with what’s guaranteed to not be in their food, including no artificial colors, flavors or preservatives, no MSG, and no genetically modified ingredients, or artificial transfats. Beyond what they don’t have, they make it easy to find the products that “work best for you” based on dietary desires/restrictions and provide ideas for how to use them. Is there something that can be done in your store that plays to Millennials’ high-low sensibilities? How can you make them feel like their grocery shopping is a curated experience that recognizes their unique needs and wants?

REALITY #1: Millennials are 18% less likely to shop at traditional supermarkets. Millennials aren’t one-stop, stock-up shoppers. They tend to shop more frequently and visit multiple channels — from farmers’ markets to convenience and drug stores to online outlets — for all of their needs. They are the ultimate “hybrid” consumer, filling in pantry staples at lower-cost stores like Walmart, and treating themselves to organic produce and specialty items at a premium grocer like Whole Foods. Walmart is working to further solidify its relationship with Millennials by opening mini-stores on college campuses, while Whole Foods keeps them engaged even outside its four walls through inspiring Pinterest boards.

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Trader Joe’s is perhaps the perfect match for this upcoming generation of foodies on a budget. The brand offers quality ingredients, interesting flavors, and convenience all at affordable prices.

Moreover, Trader Joe’s promotes a sense of discovery and enjoyment, which fits with what Millennials crave from a grocery store. According to research firm SymphonyIRI, 41 percent of Millennials say they are always looking for new products to try, which is significantly higher than the average shopper. And they are much more likely than others to seek “fun” shopping experiences. It may have been luck that Trader Joe’s mission and personality happened to align with Millennials’

REALITY #2: 60% of Millennials would pick a lowerpriced item instead of their usual brand. With many Millennials growing up and becoming independent during the Great Recession, brand loyalty has taken a backseat to frugality. In the wake of all of this, Millennials have become much more accepting of store brands. A 2011 study from Barkley, Service Management Group and Boston Continued on p. 70

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Consulting Group reveals that 60% of Millennials — a number that is statistically significant and higher than that for older adults — believe private brands are just as good as name brand products.

Stores are rushing to revamp their private label portfolios to uphold Millennials’ numerous expectations for quality, freshness, taste, etc., and to differentiate from other outlets.

Additionally, nearly two-thirds of Millennials believe store brands are a much better value for the money, and the same number are proud of the money they save by buying them.

Nice! for everyday essentials and Good & Delish for affordable indulgences.

Stores are rushing to revamp their private label portfolios to uphold Millennials’ numerous expectations for quality, freshness, taste, etc., and to differentiate from other outlets. Safeway’s The Snack Artist line of “cravable” snacks is intentionally playful in its packaging and inventive with its flavors to stand out on the shelf.

REALITY #3: The influence of new media on Millennial shoppers is two- to three-times higher than the average shopper.

Along with Safeway’s other successful store brands, The Snack Artist is helping the retailer’s sales growth on the private label side to outpace that of the national brands. Target’s new Simply Balanced brand, aimed at the rapidly growing organic and natural foods market, will eliminate all GMO-based ingredients by 2014. Simply Balanced features products like Organic White Grape Juice, Cherry Almond Greek Yogurt Granola Bars, and Sun-Dried Tomato Popcorn Chips. And Walgreens is capitalizing on the recent upswing in grocery purchases at drug stores by pushing its distinctively designed store brands, including

If you haven’t starting thinking about whether your private labels still look and taste “generic,” now’s the time to reconsider their importance to your brand.

Millennials typically turn to social media channels for opinions and recommendations before making purchase decisions. And while shopping, much more so than older generations, they’re on their smartphones to post Facebook comments, receive text messages from retailers, check product reviews, compare prices across retailers, and create electronic shopping lists. However, recent research from 360i analyzing Millennials’ tweets and Facebook posts shows that Millennials’ sentiment while in the grocery store is mostly negative. Although they tend to express themselves with a bit of a wry sense of humor and amusement, their commentary reveals that they are more likely to be annoyed and stressed (mostly due to other shoppers) than they are to be happy.

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So, how to capture Millennials’ propensity for using technology in conjunction with shopping, and turn their attention toward the positive? Giving rewards and making them share-worthy are a couple of good ways.

Target has just launched a new mobile application called Cartwheel (still in Beta) that helps consumers discover savings in the form of digital coupons and offers extra perks to users who recommend deals to their friends on Facebook. Supermarket chains like Kroger and Save Mart have started to identify brand advocates and encourage social conversation. Kroger is specifically looking to create social media buzz around their private label brands, recruiting “Agents” (who frequently fall in the Millennial category) and giving them coupons and free

THE NEW CONSUMER

products for themselves and their friends to try and talk about on their blogs and social media channels. Save Mart’s “Fresh Foodies” is a group of independent food bloggers who dream up creative meals using products found at Save Mart. The recipes are designed to be easy and affordable — featuring a deal from the weekly circular — which is especially appealing to Millennials who tend to be busy and cost-consicious. The Fresh Foodies web page is Pinterest-inspired, and the #FreshFinds hashtag allows consumers to find, follow and comment on the recipes on Twitter, Instagram and other social networks. Have you given Millennial customers something positive to talk about, whether it be entertaining, informative or money-saving? In short, Millennials are less connected and loyal to a single, traditional grocer than Generation X or Baby Boomers.

Amber Williams is President of Glass Agency, and considered an authority on the art of branding and how it can improve the bottom line. Amber will moderate a Share Group Discussion on consumer loyalty at the 2013 CGA Strategic Conference. And not only are some of the new realities they’re bringing about amplified within important consumer sub-groups like Millennial mothers and Hispanics, but these trends and preferences are being embraced by early adopters and progressive thinkers in the older generations. So, cast off any fear of change or hesitation to invest in tomorrow’s consumers — the efforts you put forth to appeal to Millennials for the future can only strengthen your brand and the relationships you already have with your tried-and-true customers today. n

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KN O W T HE L AW

A New Twist on False Advertising Lawsuits MANUFACTURERS HAVE FACED AN ONSL AUGHT OF FALSE ADVERTISING L AWSUITS IN RECENT YEARS AND FOOD COMPANIES ARE NO EXCEPTION. Some very well-known companies have had to endure the cost and embarrassment of such litigation. A recent decision from the Ninth Circuit Court of Appeals is likely to place retailers, including food retailers, squarely in the path of this accelerating trend. Food Manufacturers and False Advertising Claims Food manufacturers, which can include retailers who market their own private label brands, are often accused of skirting the line between traditional advertising and “mislabeling,” which can give rise to false advertising liability. Under California’s broad consumer protection statutes, including the Consumer Legal Remedies Act, the Unfair Business Practices Act, and the False Advertising Act, manufacturers and retailers can be held responsible for a variety of remedies, including disgorgement of profits, restitution, injunctive relief, and treble damages.

John C. McCarron

C A L I F OR N IA G R OC ER

Spencer W. Christensen

Misstatements in food labeling have recently become the target of well-funded plaintiffs’ attorneys who see deep pockets behind food and beverage companies, and who seem willing to exploit the slightest misstatement as false advertising. Campbell Soup, Naked Juice, Johnson & Johnson, ConAgra, and Chobani are among the larger manufacturers that have already been targeted. The threat, however, is not limited to these market giants; smaller producers are also feeling the impact. Our firm recently settled a claim while defending a local food producer who used seemingly innocuous statements on its packaging to advertise its organic products. The cost and possible negative publicity of false advertising lawsuits often force companies to settle rather than defend their advertising. For example, in 2011, Naked Juice was sued in a class action for allegedly mislabeling its drinks as “100% Juice,”

“All Natural,” containing “All Natural Fruit,” and being “Non-GMO.” While Naked Juice adamantly denied that its advertising claims were false and after defending the litigation for nearly two years, the company settled, agreeing to pay $9 million to the class members, establish a product verification program to ensure GMO containing ingredients are minimized, hire a quality control manager, and establish a database that permits electronic tracking and verification of product ingredients for the Naked Juice line.

Food manufacturers, which can include retailers who market their own private label brands, are often accused of skirting the line between traditional advertising and “mislabeling,” which can give rise to false advertising liability. Campbell Soup Company and the American Heart Association were recently named as defendants in a class action in New Jersey related to the soup maker’s statements that its products have “lower sodium” and contain a “healthy level of sodium.” It remains to be seen how Campbell’s will react to this litigation. Retailers and False Advertising Claims As Kohl’s Department Stores recently learned, retailers now face an increased risk of lawsuits for “price” false

K N O W T H E L AW

advertising. Kohl’s is being accused of advertising a product as being “on sale” when the price did not actually reflect a discount. In Hinojos v. Kohl’s Corp., the Plaintiff purchased luggage and some clothing at the “sale” price advertised by Kohl’s. He then sued alleging that he would not have purchased the products if he had known the sale price was not a true discount and sought damages for false advertising. In determining whether the plaintiff had suffered any economic injury, and therefore had standing to sue under California’s consumer protection statutes, the Ninth Circuit Court of Appeals stated that “price advertisements matter.” The court found that retailers have “an incentive to lie to their customers by falsely claiming that their products have previously sold at a far higher original price in order to induce customers to purchase merchandise at a purportedly markeddown sale price.” The court found that the plaintiff had suffered economic injury and that such advertising is both misleading and effective. This decision is likely to open the door to many more false advertising cases against retailers. There are many legal strategies and defenses available if a company finds itself accused of false advertising. But to minimize the risks of litigation, manufacturers and retailers are advised to revisit their packaging claims and advertising practices to make sure they comply with California and Federal law. n John C. McCarron and Spencer W. Christensen are attorneys in the Food & Ag Practice at Downey Brand, LLP, in Sacramento, California. John and Spencer focus their practices in the area of commercial litigation specifically representing food producers, processors and retailers. Both John and Spencer have experience defending food manufacturers and producers in class action litigation related to false advertising.

• Convenience • Rental income • Increased security • Higher customer count • Improved cash flow • Larger profits • A partner promoting your store

For more information, call 800.992.4978

CGA has a Facebook page we hope you “Like”! When you “Like” CGA’s Facebook page you’ll stay on top of the latest news and events in California’s robust grocery industry. News, trends, updates, and more are in-store when you join CGA’s Facebook community. For more information, or questions, contact Dave Heylen, CGA, at (916) 448-3545.

To “Like” our Facebook page, log-on to Facebook and search “California Grocers Association”

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C A L I F OR N IA G R OC ER

We’re proud to serve California Our commitment to creating healthy and vibrant communities is at the heart of everything we do. Customers tell us they want great-tasting, affordable solutions and a shopping experience like no other, and we’re listening. We proudly offer innovative programs and high-quality exclusive brands to help our customers save more every day. We’re based in California, and are honored to serve our local communities.

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AN ANCIENT PROVERB SPEAKS TO NOT LETTING OUR EFFORTS, PROCESSIONS AND RELATIONSHIPS FALL THROUGH THE HOLES IN OUR BACKPACKS. I AM USING POETIC LICENSE TO REMIND US OF ALL THE THINGS WE HAVE ACCOMPLISHED AND SHOULD BE GRATEFUL FOR; IN ADDITION TO ALL THE THINGS WE MEANT TO DO AND FAILED TO EXECUTE. For a variety of reasons, 2013 has been a challenge for many. But, my experience with those in the grocery industry tells me you are making the right decisions. We are not victims, but, victors. I see it when I walk the aisles of a small independent grocer in Carmel, or a high tech super store in Los Angeles. You are constantly on the cutting edge, striving to meet and exceed the needs of your clientele. How good can that be? As Clint Eastwood once said, “A man has to know his limitations!” As we complete the last quarter of 2013, and finish up the holiday season, I am impressed by the efforts made to fulfill the hopes and dreams of children and shoppers desperately trying to enjoy a good life in the face of adversity. Your efforts are almost spiritual — like a mission to serve. I am pleased to be part of this industry. Now, enough kissing up! Going forward what can be done to make 2014 even a better year after a transitional 2013? I think the basics are still there. In 1981, when I started in this business 4 percent at age 65 were in a position to have a lucrative retirement. Eleven percent would be well off with over $75,000 a year to depend on for the long term. Thirty-six percent were dependant on Social Security only, without any other form of regular income.

As noted in the first paragraph, it’s biblical. Human nature is such that we wait to accomplish needed tasks. We say the time isn’t right. Well, it is never the right time. As Ronald Reagan used to point out, “facts can get in the way of doing the right thing.”

1. Pay yourself first. 2. Use credit wisely and sparingly, if at all. 3. Manage expenses well. They can turn around a

suffering business. 4. Seek the appropriate counsel when you are

beyond your expertise. 5. Focus, yet diversify to manage risk. 6. Stay cool, calm and collected in the face of

challenge. 7. Persistence will win in the long run if you are on

the right track; check your bearings constantly. We are in extremely exciting and fast moving times. Our markets demand so much more and our focus is vital. The grocery industry has performed extraordinarily during these trying times. The California Grocers Association staff and Board have done highly commendable work in meeting the needs of the industry and public. Going forward we need to expand our thinking to address the needs of an ever-changing delivery system. Your involvement is critical. At the same time, we need to recognize the success we have had over the last year in transitioning during a tough recessionary period. We should be able to accomplish even more over the next 15 months. Don’t put off what you need to do. Take care of your family and business and focus on your personal need. The famous actor Steve McQueen said, “I’m not sure that acting is something for a grown man to be doing.” Make sure you are doing the right thing and “just do it”… now. n

John B. Kelly, MPA, CFP, speaks and consults on a variety of financial and succession issues. He can be reached at (916) 296-9019.

The basics haven’t changed. It may seem trite, but

Here are simple steps to take:

C A L I FO RN I A G RO C E R

Over three decades later the percentages have not moved substantially, if at all. Why? Behavior.

those of you who are in the first two groups cited above know them to be true.

WEA LT H M A N AGEMENT

Celebrate Your Victories: 2013 the Watershed Year for Your Business and Family

C A L I F OR N IA G R OC ER

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Californiaâ&#x20AC;&#x2122;s Beer Distributors Delivering Choice and Value to Californiaâ&#x20AC;&#x2122;s Grocers in a Regulated System that Works!

Consumer demand for eco-friendly products is at an all-time high. In fact, 78 percent of consumers say they buy green products and services, a 69 percent increase over last year, according to a sustainability survey by Harris Interactive earlier this year. Now, wine consumers have an eco-friendly choice in SIP Certified vineyards and wineries. The SIP — Sustainability in Practice — Certification Program of the Vineyard Team sets the bar on environmental gold standards for vineyards and wineries, and the SIP seal of excellence appears on millions of bottles produced by nearly 170 California vineyards. In order to display the seal on products, growers must meet strict eligibility requirements. “Our SIP sustainability model sets us apart because it addresses both human and natural resources,” said Kris Beal, Executive Director of the award-winning

Vineyard Team. “This represents a real commitment to environmental stewardship and equitable treatment of people who work in the industry.” The program reflects the industry’s commitment to protecting employees, communities and the environment. It requires farms and vineyards to tackle sustainability areas of habitat conservation, water quality, energy efficiency, human resources, community involvement, and business. Independent, third-party inspectors audit SIP Certified vineyards and farms to ensure all areas and resources are addressed. Nearly two decades in the making, the SIP program was launched in 2008 by a network of farmers devoted to sustainable agriculture, with input from government agencies, environmental groups and industry experts. SIP’s independent auditors inspect vineyards from Napa Valley to Santa Barbara. Visit www.sipcertified.org for more details. n

BEVERAGES SPOTLIGHT

SIP Seal Lets Wine Consumers Go “Green”

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PHONE

FAX

WEBSITE

AlEn USA

949-709-2060

949-666-6230

belinda.vanthul@alenusa.com

www.alenamericas.com

Alta Dena Certified Dairy, LLC

626-964-6401

626-913-9062

veronica_rendon@deanfoods.com

www.deanfoods.com

Anheuser-Busch InBev

909-597-0460

raul.aguilar@anheuser-busch.com

www.anheuser-busch.com

C&H Sugar - Domino Foods, Inc. - ASR Group

510-787-4416

510-787-4205

kent.kunsman@chsugar.com

www.chsugar.com

C&S Wholesale Grocers, Inc.

916-373-4396

916-373-4296

pmiller@cswg.com

www.cswg.com

IFC,1

California Beef Council

916-925-2333

916-925-8155

retail@calbeef.org

www.calbeef.org

California Beer & Beverage Distributors

916-441-5402

916-441-0713

California Lottery

www.cbbd.com www.calottery.com

818-563-3070 800-252-4613

818-563-3041

www.cscrc.net

57,BC

Coca-Cola Refreshments

213-746-5555

213-744-8765

mikanderson@coca-cola.com

www.cokecce.com

Early On, Inc.

877-528-2229

209-825-5414

dave@earlyon.com

www.earlyon.com

F. Gavina & Sons, Inc.

323-582-0671

323-581-1127

mike.artukovic@gavina.com

www.gavina.com

Financial Supermarkets, Inc.

707-656-6814

707-449-1537

info@supermarketbank.com

www.supermarketbank.com

37,62

Gelson’s Markets

818-906-5709

818-990-7877

www.gelsons.com

General Mills

480-281-6700

480-281-6702

meghan.riley@genmills.com

www.generalmills.com

Gizmo Beverages

281-300-1009

brad.foster@gizmobeverages.com

www.teaofakind.com

Glass Agency

916-448-6956

916-448-2049

amber@glassagency.com

www.glassagency.com

Grace Foods (USA) Inc.

954-874-1731

954-874-1733

desiree.sorensen@gkco.com

www.gracefoods.com

Harris Ranch Beef Company

559-896-3081

559-896-3095

brad.caudill@harrisranch.com

www.harrisranchbeef.com

The Hartz Mountain Co.

201-271-4800

201-271-0326

idominique@hartz.com

www.hartz.com

Hillshire Brands Company

312-614-6000

312-614-6547

dennis.belcastro@hillshirebrands.com

www.hillshirebrands.com

Hobart & Bach-West Distributors, Inc.

800-875-9950

503-659-2643

sales@bach-west.com

www.bach-west.com

Jelly Belly Candy Co.

707-428-2800

707-399-2377

jalden@jellybelly.com

www.jellybelly.com

Kellogg Company

269-961-2000

269-660-4518

www.kelloggs.com

Kraft Foods Global, Inc.

847-646-2000

847-646-2800

www.kraftfoods.com

41 MillerCoors

916-786-2666

916-786-9396 chris.mathews@millercoors.com www.millercoors.com

11 Nestle Purina PetCare

800-421-1721 x9 314-982-4876

314-982-2860

73 Nielsen

847-605-5732

NuCal Foods

209-254-2200

209-254-2255

www.nucalfoods.com

Pepsi Beverages Company - WBU

925-416-2573

925-416-2600

www.pepsi.com

Procter & Gamble

925-867-4900

513-277-7964

www.pg.com

Prudential Overall Supply

949-250-4855

949-261-1947

pos@pos-clean.com

www.pos-clean.com

rePLANET, LLC

951-817-3258

951-520-1701

joe.perez@replanet.com

www.replanet.com

Revionics, Inc.

916-797-6051

916-797-6081

info@revionics.com

www.revionics.com

RSi Retail Solutions

650-390-6143

650-967-2209

laurie.speaks@retailsolutions.com

www.retailsolutions.com

Safeway Inc.

925-467-3000

925-467-3323

www.safeway.com

Sioux Honey Association

510-888-1511

510-727-9992

www.siouxhoney.com

SIP Certified Sustainable Wines

805-466-2288

805-466-2292

info@vineyardteam.org

www.sipthegoodlife.org

Snyder’s-Lance, Inc.

800-233-7125

groeper@snyderslance.com

www.snydersofhanover.com

Specialty Food Association

212-482-6440

212-482-6459

info@nasft.org

www.fancyfoodshows.com

Sugar Bowl Bakery

888-688-1380

510-782-2119

sales@sugarbowlbakery.com

www.sugarbowlbakery.com

Sun Products Corporation

949-733-0263

949-266-8857

kent.mclain@sunproductscorp.com

www.sunproductscorp.com

Sun-Maid Growers of California

209-472-8445

209-472-8448

mboggus@sunmaid.com

www.sunmaid.com

Supervalu Wholesale

952-932-4373

952-932-4528

www.supervalu.com

Tony’s Fine Foods

916-374-4000

916-372-0727

kberger@tonysfinefoods.com

www.tonysfinefoods.com

Tyson Fresh Meats, Inc. – Dan Peed

605-235-3215

479-757-6720

dan.peed@tyson.com

Open-Prairie.TysonFoods.com

4,59

Unified Grocers, Inc.

323-264-5200

323-262-0658

customercare@unifiedgrocers.com

www.unifiedgrocers.com

26 Unilever

630-955-5425

630-955-5479 vinit.patel@unilever.com

800-540-5181

C A L I F OR N IA G R OC ER

916-322-5136

IBC California Shopping Cart Retrieval Corp.

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Western Exterminator Company

tiernan.summins@kraftfoods.com paul.cooke@purina.nestle.com

www.purina.com

juan.davila@nielsen.com

www.nielsen.com

paul.turcotte@pepsico.com

littleman@west-ext.com

www.unilever.com www.westernexterminator.com

iPhone CART REPORTING â&#x20AC;&#x153;WE HAVE AN APP FOR THATâ&#x20AC;?

CARTSNAP

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A ready supply of shopping carts are an absolute necessity in operating a successful grocery/retail enterprise. Shopping carts are at risk from the public at large and from local and state authorities, as well. As the pre-eminent cart recovery service in California, and Nevada, CSCRC is extremely well positioned to deal with both threats.

Customers will

CSCRC easily accessible | We are open daily from 7:00 a.m. to 6:00 p.m.

For more information and to join the program today, call (818) 563-3070. To report a cart location, call toll free (800) 252-4613 24 hours a day, 7 days a week. 1020 North Lake St., Burbank, CA 91502