Grocer2014 issue1 web

2014, ISSUE 1

CALIFORNIA GROCERS ASSOCIATION

For the latest industry news visit www.cagrocers.com

IN THIS ISSUE For Independents, It’s All About Balance Focus on Technology: Becoming a Shopping Buddy Is Center Store Doomed?

Tom Wenning: A Capital Career

CONTENTS

F E AT U R ES

COLU M NS

Tom Wenning: A Capital Career

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Tom Wenning recently announced his retirement after 31 years representing the National Grocers Association on Capitol Hill. California Grocer asked Wenning to share the ups and downs of politics in the nation’s capital.

Is Center Store Doomed?

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Is the long-suffering center store doomed to be the stepchild of the supermarket, or can retailers and manufacturers breathe life into this extensive and potentially profitable piece of retail real estate?

Focus on Technology: Becoming a Shopping Buddy

What if retailers could be a shopping buddy - accompanying customers as they walk the aisles. With today’s technology innovations, that idea isn’t far fetched.

COVER STORY: Grocery’s Real Survivor: Independents

Three California grocery retailers discuss the challenges independents face and offer suggestions on how to succeed in this new economy.

For Independents, It’s All About Balance

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The outgoing National Grocers Association chair shares his insights on the significant role independent retailers play in the country’s grocery marketplace. He says the key is balance.

President’s Message What a Difference You Make................................ 5 From The Chair The Power of One Voice....................................... 6 Viewpoint — Kevin Coupe The Front Lines.................................................... 8 Capitol Insider — Louie Brown Two-Year Session Chaos...................................... 23 Perspective 2014 Could Be a Big Year of California Tax Law Changes............................... 25

DEPA RT M EN TS CGA News........................................................ 12 Government Relations...................................... 22 Washington Report ..................................... 27, 28 Q & A — Tim Gorsuch........................................31 Know the Law................................................... 34 Advertiser Index ............................................... 64

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 Laura Peralta

For association members, subscription is included in membership dues.

Subscription rate for non-members is $100 and does not include CGA Buyers’ Guide. © 2014 California Grocers Association

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

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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 F OR N I A G R OC E R

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

Executive Director, CGA Educational Foundation Shiloh London

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CGA

| Board of Directors

EXECUTIVE COMMITTEE

Chairman of the Board Mary Kasper Fresh & Easy Neighborhood Market, Inc. First Vice Chair Joe Falvey Unified Grocers, Inc.

Second Vice Chair Kevin Konkel Raley’s Secretary Diana Godfrey Smart & Final Stores

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.)

Kevin Arceneaux Mondelez International, Inc. Dennis Belcastro Hillshire Brands Company Paul Cooke Nestlé Purina PetCare Brent Cotten The Hershey Company Robert Digrigoli Procter & Gamble

Brian Dowling Safeway Inc. Kendra Doyel Ralphs Grocery Company John Eagan Costco Wholesale Jon Giannini Nutricion Fundamental, Inc. Robin Graf 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 Keith Olscamp Campbell Soup Company Chris Podesto Food 4 Less - Stockton/ Rancho San Miguel Markets Chris Polak Unilever Bob Richardson The Clorox Company Harish Solanki Big Saver Foods, Inc.

Naresh Solanki Bestway/Gardena Supermarkets Mimi Song Superior Grocers 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 Van Gorkom NuCal Foods Jim Wallace Albertsons LLC

SUPPLIER EXECUTIVE COUNCIL

Veronica Rendon, Dave Thatcher Alta Dena Certified Dairy, LLC Rick Van Nieuwburg Altria Corp. Services Raul Aguilar Anheuser-Busch InBev Dan Atkins Berkeley Farms, Inc. Rick DuCharme, Rickey Hamacher Bimbo Bakeries USA 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 Bob Richardson The Clorox Company 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 Gregory E. Morrissey Durable N.A. Jeff Andrews Elite Storage Solutions Scott Johnson, Shannon Nadasdy Financial Supermarkets, Inc. Bruce Wyatt, Thomas Wilson Flowers Baking of California Brian Rosen Gleason Inc. Fernando Gallego Golden Gate Paper Company David Van Winkle Hansen Beverage Company

Elizabeth Alvarez-Sell, Greg Bailey The Hershey Company Tim Cohen, Bob Kelly 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, Inc. 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 Mia Hagen Polymer Logistics Inc. Robert Digrigoli 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 Chris Polak Unilever Jennifer Ward WorldPay US, Inc.

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C A L I F OR N I A G R OC E R

CHAIRMAN APPOINTMENTS

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Immediate Past Chair Kevin Davis Bristol Farms

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B U I L D I N G R E L AT I O N S H I P S . S T R E N G T H E N I N G F R I E N D S H I P S .

For over a decade, CGA Grocers Day at the Capitol has built bridges between the state’s grocers and policy makers. With significant policy issues as well as specific legislation taking center stage, participating in this banner event is more important than ever.

WEDNESDAY, MARCH 26, 2014 SACRAMENTO, CA For additional information, contact Dane Hutchings, CGA, at (916) 448-3545.

Sponsorship opportunities available. Please visit our website at www.cagrocers.com, or contact Beth Wright (916) 448-3545.

PRESIDENT’S MESSAGE

What a Difference You Make

CGA’s most effective government relations advocacy tool is its membership. Whether a single store operator, or large supermarket chain, your involvement makes a difference.

During my five years as CGA President a significant amount of editorial space on this page has been dedicated to encouraging greater grass-roots involvement by Association members and chronicling the impact it has on the association’s advocacy efforts.

It has been a message worth repeating, and frankly, one that you will hear often. The influence grocery retailers have on local and state elected officials cannot be overstated.

The influence grocery retailers have on local and state elected officials cannot be overstated.

I was reminded of this recently during a special “Hike the Hill Day” CGA sponsored to discuss the ongoing WIC vendor authorization moratorium with legislators and regulatory officials. We invited a handful of retailers to join us to help explain first hand why changes to the existing exception criteria needed to be made.

Newly elected CGA Chair Mary Kasper, Fresh & Easy Neighborhood Market, has made strengthening the Associations grass-roots efforts one of her top priorities. One way you can answer her call is by participating in Grocers Day.

RO NALD FONG President/CEO

On the following page is the first of five columns from our new Chair. It is must reading. Her message regarding the power of one united voice is right on the mark.

Since taking the reins of CGA in 2008, it has been my privilege to work with Mary on the CGA Board. She is the third woman to chair the CGA Board and the first since 2001. She will be an excellent chair!

This year is going to be a busy one for CGA’s government relations team. The Legislature is in the second year of its two-year session.

Legislators will be scrambling to get bills passed and to the governor’s desk by the August deadline. It is also an election year, which brings with it its own unique challenges and opportunities. n

Prior to the event, our meetings with officials were cordial but there was no sense of urgency in getting policymakers to agree to help.

What a difference your participation makes!

With retailer support in hand, appointments were made, doors were open and meaningful dialogue ensued. We finally see a light at the end of the tunnel and it’s not an oncoming train!

Day at the Capitol.” This is your chance to meet face to face with state legislators and staff to discuss important industry issues. I cannot stress enough the impact your involvement in this event makes. It literally is a door opener.

C A L I F OR N I A G R OC E R

On March 26, CGA will host its annual “Grocers

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FROM THE CHAIR

The Power of One Voice M A RY K ASP E R CGA Chair of the Board Senior Vice President, General Counsel, Secretary Fresh & Easy Neighborhood Market Inc.

Diversity has been at the heart of California from its beginnings, and this is reflected in CGA’s rich mix of grocery operators and suppliers.

What I love about our industry is that each grocery store offers something different. It might be innovative products you can’t find anywhere else; it might be a creative store environment; it might be affordable prices; or it might be unparalleled customer service.

laws and regulations that impact us all.

Legislators recognize that we are not paid political lobbyists who may not even live in California. They know that we are part of their communities and that their constituents visit our stores every day.

Large, small, traditional, ethnic, natural, fresh, discount, convenience, we all have a common goal: serving the communities where we operate and offering what our customers most need and want in a business-friendly environment.

We’ve found that one group is often the most effective — the independent grocer.

Unprompted, legislators talk with us about the grocery stores in their districts and invariably name their neighborhood independent. They know the store’s location. They know the name of the store manager. They name their favorite product or team member. Independents put a credible and memorable “face” to what may be an otherwise anonymous issue, and have been tremendously effective in forging positive political relationships and helping CGA achieve its legislative priorities.

As an association, our retailer/supplier membership mirrors our statewide diversity. Each CGA member has an equal voice on initiatives and activities — from Board meetings and Committee participation to events such as the Strategic Conference and Grocers Day at the Capitol.

Our government relations program is one of the Association’s most active and influential arms.

It marries the expertise of internal staff with member business acumen for powerful advocacy in Sacramento and throughout the state.

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At our annual Grocers Day in Sacramento, we speak with one voice on proposed industry

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New laws and regulations especially impact small businesses and the viewpoint of independents is compelling and relevant. Although not every legislator agrees with us all of the time, we always have interesting conversations and, oftentimes, succeed in educating legislators about our businesses and the regulatory challenges that we face each day.

Grocers Day is coming up on Wednesday, March 24. I urge all our members, especially our independents, to participate. Spending a full day in Sacramento is a huge ask — but it’s worth it, and no prior experience is required! If possible, send a business operator — everyone is welcome. Legislators remember their meetings with our members. Even on a bill that we may not support, a small amendment requested by a member on Grocer’s Day can protect a business and help a P&L. We’re working hard to make this Grocer’s Day the most successful yet. We look forward to seeing you in Sacramento! n

Remarks by Former Secretary of State Hillary Rodham Clinton

Steve Forbes Leadership From the Ancient World to Today

Capt. Richard Phillips Steering Your Ship Through Rough Waters

Peyton Manning What It Takes to Be a Champion

Gary Vaynerchuk Riding the Hashtag in Social Media Marketing

Bobby Flay From High School Drop-Out to Culinary Star

Harold Lloyd Fishin’ for Sales?

Better Change Lures!

Harry Balzer Eating Patterns in America

The Big Adventure. You won’t want to miss the best

Show in the dairy, deli, bakery, and foodservice business. Camp Foodie is a 3-day adventure in the Mile-High City of Denver, complete with a roster of attendees including the best food buyers, merchandisers, and marketers in the industry; all gathered to network and learn about new products, trends, and new business opportunities.

Set Your Sights High. Pack up your gear and your

IDDBA’s Show & Sell Center 2014. This idea center

delivers peak merchandising ideas, creative sets, new themes, & signage – the creative thought starters you need to help create a better selling environment in your stores. Complete with onsite merchandising advice and an Idea and Photo CD; your whole team will benefit from the creativity and imagination of retail merchandisers in a real store setting.

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Register Now • Seminars • Show Planner • Hotels • Exhibits • Show & Sell Center International Dairy-Deli-Bakery Association P.O. Box 5528 • Madison, WI 53705 • call 608.310.5000 • fax 608.238.6330 • visit www.iddba.org

C A L I F OR N I A G R OC E R

best hiking shoes as you make your way west at an elevation of 5,280 feet to explore over 1,800 booths, 3 days of top speakers, a 10,000 sq. ft. Show & Sell merchandising pavilion, and other industry events; while you network and exchange ideas with nearly 9,000 of your fellow campers.

Come Celebrate. We’re celebrating 50 years in business by lining up some great business, food, sports, and political speakers to share their knowledge on deli and bakery research, food and consumption trends, emerging technologies, social media, marketing trends, consumer behavior, merchandising ideas, and leadership.

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VIEWPOINT

The Front Lines

KEVIN C OU P E

Divisions between management and labor, exacerbated by the ongoing debate about income inequality, are not likely to improve during the coming year, especially because they will be painted as a political issue … and there’s nothing like an election year to turn a political debate into a toxic standoff.

It seems to me, though, that to characterize this discussion as purely political is to miss the point — that addressing the country’s income inequality problem, which results in a lack of social mobility, less spending money for many, and a sluggish economy, would be good business.

This is something I feel strongly about. I’ve been writing for years about how I think companies would be better off if they’d treat employees like assets rather than as costs. (I have some experience with this — having spent a lot of time working for publishers who thought that the sales guys were assets because they brought in advertising, and the editorial folks were a cost because, well, we just spent money … forgetting the fact that without editorial, the magazines would just be full of ads, and nobody would want to read them.)

I’m consistently amazed — though no longer surprised — when I hear feedback from people who worked for the likes of Jim Donald, former CEO of companies like Pathmark, Starbucks and Haggen, and now CEO of Extended Stay

Hotels, say they felt and appreciated the fact that he always put the biggest emphasis on making sure that the people on the front lines felt empowered and appreciated, because he knows that this translates into a better customer service experience, which turns into higher sales and profits.

And we all know how Costco Wholesale has traditionally resisted calls from stock analysts to lower labor costs and raise margins, saying that its approach, which includes making sure that store employees are well-paid, was best for success on Main Street. (The good news is that Wall Street seems more convinced lately.)

There was a story in the New York Times Magazine the other day that focused specifically on how better-paid employees can help retailers to greater profitability and productivity … as opposed to just being a cost that hurts their bottom line. An excerpt: “Even the most coldhearted, moneyhungry capitalists ought to realize that increasing their work force, and paying them and treating them better, will often yield happier customers, more engaged workers and — surprisingly — larger corporate profits. This sounds Pollyannaish, sure, but a study co-authored by Marshall

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Fisher, a Wharton professor who

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specializes in retail-management studies, backs it up. For every dollar of increased wages, one retailer that was studied by Fisher brought in $10 more in revenue. For more-understaffed stores in the study, the boost was as high as $28.”

Continued on p. 10

The Amen Family and Kevin Arceneaux will be inducted into the CGA Educational Foundation Hall of Achievement Dinner on Thursday, March 13, 2014, at the Hilton Costa Mesa.

Date

Reception

Thur. / Mar. 13

5:30 - 6:30 p.m

Location

Dinner /Program

Hilton Costa Mesa

6:30 - 9:30 p.m.

Registration available online at www.cgaef.org.

The Amen Family Jeanne, Renee, Jim & Joanne

Kevin Arceneaux

Regional Vice President of California & Hawaii

VIEWPOINT

Continued from p. 9

chain called Snarf decided to fire all its employees via email just days before Christmas — allegedly because the company plans a major renovation of the facility that would keep it closed for some time.

There were those who were not buying that excuse, saying instead that it was retaliation for some employees walking off the job earlier in the month to protest for higher wages.

The company was forced to apologize in the media and pay employees an extra week’s wages by way of apology. But pretty quickly, “getting Snarfed” took on a very specific meaning — being treated as disposable, as costs that simply can be eliminated. Forgetting that often it is the people on the front lines who make a business viable, credible and successful.

In other words, sometimes if you spend money on labor it will result in making more money in the long run.

But it’s not just money. Sometimes it’s just treating people as if they are partners in the business … because if you treat people that way, often they will respond as if they have some kind of personal investment.

Such an approach often can seem radical.

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Take, for example, Zappos, which is owned by Amazon. The Las Vegas-based Zappos has embarked on an initiative that, if successful, could result in a less hierarchical, manager-free system that pretty much eliminates titles and organizational charts.

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It’s called, “Holocracy,” and the goal is to make employees accountable for each other, not a manager.

This initiative seems typical of the Zappos culture; it is, afterall, a place where at their Las Vegas headquarters, the call center reps enjoy the best view. Because, as CEO Tony Hsieh says, “They’re the ones providing customer service and that is what our brand is about.”

Iconoclastic, to be sure. And such an approach probably would be tough to impose on an entrenched company, as opposed to creating one from scratch.

Of course, some companies simply don’t get it.

Take, for example, the social media uproar just last month when the Chicago outlet of a sandwich shop

I know this is complicated, that figuring out how to balance profitability and productivity is not always easy. But it seems to me that in the retail business, a core value ought to be making sure that the people on the front lines are happy, appropriately paid, and encouraged to feel a sense of ownership in the company and the customer experience. This can mean many things, and take many forms.

The bottom line is that most customers have no idea who the CEO is, or who anyone is on the executive floor.

The bottom line is that most customers have no idea who the CEO is, or who anyone is on the executive floor.

But that person staffing the checkout line, or working in the deli, or stocking the shelves on aisle four? That’s the face of the organization.

It all works better if that face is smiling. n Editor’s Note: Kevin Coupe is co-author of “The Big Picture: Essential Business Lessons from the Movies”, and is working on a sequel.

C GA N EWS

New CGA Hires LAURA PERALTA NAMED DIRECTOR, LOCAL GOVERNMENT RELATIONS, SOUTHERN CALIFORNIA The California Grocers Association has named Laura Peralta as director, local government relations, Southern California, effective immediately.

In this position, Peralta is responsible for CGA’s local government advocacy and outreach for the Southern California region. In addition, she will analyze ordinances, review regulatory proposals, draft advocacy plans, and communicate with elected officials, regulatory staff and member companies.

She will also serve as CGA’s representative in Southern California on Association issues.

Her government relations experience ranges from local to federal. Her professional experience includes the Los Angeles City Council, U.S. Department of Labor, The White House and the U.S. House of Representatives. She has also worked for Legal Aid

Society of Orange County, Bank of the West and most recently as a consultant for Dewey Square Group.

“Laura’s government relations experience at both the national and local level will be a real plus for the Association,” said Keri Askew Bailey, senior vice president, government relations and public policy, CGA. “Her experience both in the public and private sectors will be tremendous assets and will greatly assist strengthening our advocacy program in Southern California.”

Peralta replaces Sarah Paulson Sheehy who recently accepted a position with Mattel, Inc. Contact information: Laura Peralta 1020 N. Lake Street Burbank, CA 91502 (714) 335-5531 n

LESLEY HALL PROMOTED TO MANAGER OF ADMINISTRATION, ASSISTANT TO THE PRESIDENT/CEO Lesley Hall has been promoted to manager of administration and executive assistant to the President/CEO, effective immediately.

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In this position, Hall will be responsible for supporting association operations by maintaining office systems and supporting CGA President and CEO Ron Fong.

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Her duties will include managing human resources for CGA an affiliated companies and foundations, organizing office operations, updating office policies and procedures, managing and maintaining

association membership database, and other general office manager responsibilities.

In addition, she will serve as confidential assistant to the association president and CEO. “Lesley is a tremendous asset to the Association,” said Ron Fong, CGA president and CEO. “Lesley has consistently demonstrated a willingness to assume additional responsibilities. Her association knowledge, determination and positive personality make her the perfect person for this important staff position.”

Hall joined CGA fulltime in June of 2010 as receptionist. n

CGA NEWS

CGA Elects New Board, Leadership Mary Kasper, senior vice president, general counsel and secretary, Fresh & Easy Neighborhood Market Inc., was elected the 2013-2014 California Grocers Association Chair of the Board of Directors at its Annual Meeting on Dec. 6, 2013.

Meet the new directors:

In addition to Kasper, the following individuals were elected to the 2013-2014 CGA Board of Directors Executive Committee: First Vice Chair Joe Falvey, Unified Grocers, Inc.; Second Vice Chair Kevin Konkel, Raley’s; Secretary Diana Godfrey, Smart & Final Stores; and Immediate Past Chair Kevin Davis, Bristol Farms.

Kevin Arceneaux has spent more than 30 years calling on retailers in California for three major CPG companies.

Chairman’s appointments to the Executive Committee include: Dave Jones, Kellogg Company, and Dora Wong, Coca-Cola Refreshments. Former CGA Chair Jonathan Mayes, SAfeway Inc. was nominated as an honorary board member.

Directors elected for their second three-year term include: Raul Aguilar, Anheuser-Busch InBev; Paul Cooke, Nestle Purina PetCare; Jon Giannini, Nutricion Fundamental, Inc.; Dave Jones, Kellogg Company; and Omar Milbis, Rio Ranch Markets.

Directors elected for their first full three-year term include: Kevin Arceneaux, Mondelez International; Brian Dowling, Safeway Inc.; Robin Graf, Whole Foods Market; Keith Olscamp, Campbell Soup Company; Chris Podesto, Food 4 Less/Rancho San Miguel Markets; Chris Polak, Unilever; Mimi Song, Superior Grocers; Tiernan Summins, Kraft Foods Group, Inc.; and Jim Van Gorkom, NuCal Foods.

In 1980, Kevin joined E & J Gallo Winery after graduating from the University of Southern California’s Management Development Program.

He held a number of positions in sales and sales management throughout his 11-year career with Gallo.

In 1991, Arceneaux joined the Frito-Lay Division of PepsiCo as a zone sales manager in Los Angeles. He was responsible for leading the DSD sales force for Frito-Lay in all channels of trade. He also was their account executive for Ralphs and Food 4 Less for several years.

In 2001, he joined Kraft Foods to become region vice president, Nabisco Division, overseeing the Nabisco DSD sales force and account executive team. In 2007, he became the west area vice president of retail for the western United States, and recently was appointed the Region Vice president for the newly created California Region for Mondelez International, the parent company for Nabisco and Cadbury. He is responsible for California and Hawaii.

Brian G. Dowling Vice president, Public Affairs Safeway Inc. Brian Dowling has overall responsibility for the company’s external communications function including media, public and community relations, as well as diversity affairs. He also has overall responsibility for the dayto-day operation of the Safeway Foundation.

Prior to joining the company’s corporate staff in 1998, he was director of public affairs for Safeway’s Vons division in Southern California. Before that he managed the public affairs and government relations

C A L I F OR N I A G R OC E R

Mary Kasper CGA Chair Fresh & Easy Neighborhood Market

Kevin Arceneaux Region Vice president Mondelez International, Inc.

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Continued on p. 14

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CGA NEWS

Continued from p. 13

function in Safeway’s Eastern Division. He managed the same function in Safeway’s Texas Division. His career spans more than 30 years managing various communications and public affairs functions.

Dowling holds a B.A. in communications from California State University at Hayward, and a master’s degree in business administration from St. Mary’s University in Moraga, Calif.

He serves on the Boards of Directors of Easter Seals, the Safeway Foundation and the California Transplant Donor Network. He resides with his wife and two daughters in Danville, Calif.

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Robin P. Graf Executive Director of Team Member Services Whole Foods Market Southern Pacific Region

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Keith is responsible for building business relationships at senior levels of customers and CPG industry trade associations with global scope.

He leads the company’s trade marketing initiatives, and has responsibility for customer engagement and Campbell’s customer value proposition.

Keith began his Campbell career in 1979. He’s held positions of increasing responsibility across multiple business units, and has a varied resume of field sales and World Headquarter experience.

Keith was previously vice president, retail and broker sales operations for Campbell North America.

Keith graduated from St. Bonaventure University.

He and his wife, Pamela, reside in Cincinnati and have two children.

Chris Podesto Senior Director of Marketing PAQ Inc. dba Food 4 Less and Rancho San Miguel Markets

Robin began her career with Whole Foods Market in 1999, and leads all human resource strategies in the region by building strategic partnerships with the executive team and operational partners. Prime initiatives include employee relations, training and development, compensation, litigation/risk management and recruitment.

Chris Podesto is the senior director of marketing for PAQ Inc., Food 4 Less and Rancho San Miguel Markets. He brings more than 30 years of retail marketing experience to PAQ Inc., and has been instrumental in leading the company to multiple years of positive growth.

Whole Foods Market is the leading retailer of natural and organic foods, and America’s first national “Certified Organic” grocer. The Southern Pacific region operates 49 stores located in Southern California, Arizona, Nevada, and Hawaii, and employs more than 9,000 team members.

Following in the footsteps of his grandfather, Italo, and father, Gary, Podesto began his career in retail grocery at the age of 14 as a courtesy clerk. At the age of 16, he moved on to work as a utility clerk.

He continued to learn the industry from the ground up and quickly became a store director.

Robin graduated from Central Michigan University.

She and her husband, Rick, resides in Santa Clarita, Calif. and have two children.

In 1995, John Quinn, Pat Quinn and Glenn Evan acquired the three-store chain. Chris continued to work for PAQ Inc. as a store director and now serves as the senior director of marketing for PAQ Inc.

Keith Olscamp Vice President, Industry Relations & Trade Marketing Campbell Soup Company Keith Olscamp is vice president, industry relations and trade marketing for Campbell Soup Company, a global manufacturer and marketer of high-quality consumer food products.

Chris attended Boise State and the University of Pacific. He majored in business and communication. Chris is married to Kathy Podesto and have 3 children: Nick, 23, Michael, 19, and Carly, 17.

Continued on p. 16

Welcome

Congratulations to the New CGA Board Members Kevin Arceneaux

Chris Podesto

Brian Dowling

Chris Polak

Jim Van Gorkom

Mimi Song

Robin Graf

Tiernan Summins

Mondelez International

Safeway Inc.

NuCal Foods

Whole Foods Market

Keith Olscamp

Campbell Soup Company

Food 4 Less – Stockton

Unilever

Superior Grocers

Kraft Foods Group, Inc.

CGA NEWS

Continued from p. 14

Chris Polak Director of Sales West Division Unilever Chris Polak is the director of sales for the West Division for Unilever. Chris will be responsible for leading the sales team in the Western United States, as well as HEB. Chris began his career with Unilever in 1987, as a sales representative in upstate New York and has held many different roles over the last 25 years. Chris has worked with Advantage Sales and Marketing while he was Director of Sales in the Central and Northeast Divisions and spent one year on the West Coast as a Business Development Manager in 1998. Most recently, Chris has been the Kroger Team Director.

Chris attended Siena College in Albany, NY, where he earned a Bachelor’s Degree in Marketing and Management.

Mimi Song Chairman & Chief Executive Officer Superior Grocers

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Mimi Song is president and chief executive officer of Superior Grocers, and leads one of the largest independently-owned chain of grocery stores in Southern California.

She has more than 30 years’ experience in the supermarket industry, and has dedicated her career to making Superior Grocers a recognizable leader and innovator in the Southern California retail grocery industry.

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A native of Korea, Mimi immigrated to the United States in 1977, and founded Superior Grocers in 1981, with one store location. Superior has grown to 42 stores, employing nearly 5,000 employees throughout Los Angeles, San Bernardino, Riverside, Orange County, Ventura County, and the outskirts of Southern California.

With a strong focus on offering customers a superior grocery shopping value, excellent service and community involvement, Mimi’s visionary leadership enables Superior’s employees, customers and vendor partners to work together and create a true partnership in their Southern California communities.

Jim Van Gorkom Vice President, Sales & Marketing NuCal Foods Jim Van Gorkom began his career in the grocery industry 30 years ago while in college. His background includes sales positions with several national organizations, including Nestle Foods. He joined NuCal Foods in 2006 after 16 years with Sun-Maid Growers, where he was vice president of retail sales. Jim directs all sales and marketing functions for NuCal Foods, Rocky Mountain Eggs and Nulaid Foods.

He is a graduate of the USC Food Industry Executive Program and is actively engaged in a number of work and community organizations. He is past Headlite of The Illuminators and serves on the boards of the City of Hope’s Northern California Food Industry Circle, Food and Drug Industry Alliance for Easter Seals Bay Area and the Frozen & Refrigerated Food Council of Northern California. In addition, he is a member of the NFRA’s Refrigerated Promotions Committee and a member of the Sales Managers Club of San Francisco.

Tiernan Summins Director of Category Development & Insights Kraft Foods Group, Inc. Tiernan Summins is director of category development and insights for Kraft Foods Group, Inc. In this role she is charged with driving sustainable category growth through the use of Shopper Behavior data and analytics; and optimizing category merchandising strategies across all customers based in the Western United States.

She joined Kraft in early 2011 after spending six years in the shopper insights organization of Kellogg Company. Hired to establish the Shopper Insights function for the snacks division, she went on to recreate the function three times broadening her business unit responsibility, until she led the organization for the total Kellogg’s portfolio.

A 24-year CPG veteran, Tiernan began her category management career with MasterFoods, USA (former M&M/MARS) before accepting a position in sales and market research & shopper insights with Oaklandbased Clorox Company in 1999. n

Congratulations

KEVIN ARCENEAUX FOR BEING NAMED TO THE

CALIFORNIA GROCERS

a s s o C i at i o n

BOARD OF DIRECTORS

Angled to exist on a level plain

CGA NEWS

SEC Hosts Center Store Seminar Industry expert Todd Hale explored how retailers and suppliers can collaborate to revitalize center store during a seminar on December 5, hosted by the CGA Supplier Executive Council and held in conjunction with the CGA Board of Directors meeting.

To Economic Recovery,” was then condensed and presented the following day to the CGA Board of Directors. n

Using data from The Nielsen Company, Hale, senior vice president of consumer and shopper insights, Nielsen, provided statistical information showing the continual decline in center store purchasing and discussed with attendees ways to reverse that trend. His two-hour presentation, “Funny Things Happened On Our Way Todd Hale, The Nielsen Company, leads SEC discussion.

Former CGA Chair Receives Recognition CGA Immediate Past Chair Kevin Davis, president and CEO of California-based grocery chain Bristol Farms, was awarded the Robert B. Wegman Award for Entrepreneurial Excellence from the Food Marketing Institute during its Midwinter Executive Conference.

The award is named in honor of the founder of Wegmans Food Markets, and celebrates retailers and wholesalers who create exceptional retail innovation.

“I’ve yet to meet someone who understands his customers, his associates, his role and what the company should be more than Kevin Davis,” Norman Mayne, CEO of Dorothy Lane and past-recipient of the Wegman Award. “His insight on the profits and opportunities is outstanding; he’s somebody that we can all learn from.” n

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CGA Staff Assists Local Food Bank

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In what has become an annual tradition, CGA staff spent a day in December serving the local Sacramento community. This year staff assisted the Sacramento Food Bank & Family Services in filling grocery bags with food designated for the less fortunate. Staff also assisted in the food bank’s clothing store, which provides clothing free of charge to those in need. CGA President Ron Fong said helping local charities serves as a reminder as to our responsibilities to help those in need. n

CGA NEWS

Fong, Senators Propose Plastic Bag Ban CGA President and CEO Ron Fong joined state Senators Alex Padilla (D-Pacoima), Kevin de Leon (D-Los Angeles) and Ricardo Lara (D-Huntington Park) on January 24, in Vernon, Calif., to introduce a new bill (SB 270) to ban single-use plastic carryout bags statewide and help businesses comply with the maze of existing rules, create jobs, and protect our communities and quality of life.

“More than 90 cities and counties have enacted single-use plastic bag bans with great success,” said Fong at a press conference held at Command Packaging, a carryout bag manufacturer. “But these local jurisdictions and those businesses within them need, and deserve, a clear and consistent statewide direction to navigate these complexities. Our employees and customers also deserve the consistency a statewide bill would create. SB 270 will provide this,”

Fong said grocery stores are literally on the front line of this change.

“We know that businesses cannot thrive, or even survive, without constantly evaluating, adapting and innovating,” Fong said. “We encourage California entrepreneurs to become part of a new, clean economy that creates new jobs. Many companies already are training employees and building facilities to manufacture reusable grocery bags.”

“Single-use plastic bags are harmful to our economy, environment and quality of life. Moving our economy and society toward reusable bags is the solution,” Fong said. “This issue has been analyzed, tested and debated for years. We know what works, and we know what does not. We have listened to the needs of workers, local governments and the environmental community.” n

CGA Welcomes New Members THE CALIFORNIA GROCERS ASSOCIATION WELCOMES THE FOLLOWING NEW MEMBERS: Mettler Toledo 1900 Polaris Parkway Columbus, OH 43240 Website: www.mt.com/na-WelcomeCGA Contact Person: Grace Chiam-Hester, Territory Sales Manager E-mail: grace.chiam-hester@mt.com

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La Huerta USA 2201 Timberloch Pl Ste 275 The Woodlands, TX 77380 Website: www.goawayandthink.com Contact Person: Henry Mayhew, Partner E-mail: henrymayhew01@aol.com

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Paleticas 2201 Timberloch Pl Ste 275 The Woodlands, TX 77380 Website: www.goawayandthink.com Contact Person: Henry Mayhew, Partner E-mail: henrymayhew01@aol.com

Elite Storage Solutions 1118 W Spring St Monroe, GA 30655 Website: www.elitestoragesolutions.com Contact Person: Jeff Andrews, VP Sales E-mail: jandrews@elitena.com Durable N.A. 1001 Avenida Pico, Suite C515 San Clemente, CA 92673 Website: www.DurableNA.com Contact Person: Gregory E. Morrissey, President E-mail: Greg@DurableNA.com Polymer Logistics Inc. 1725 Sierra Ridge Dr Riverside, CA 92507 Website: www.polymerlogistics.com Contact Person: Mia Hagen, Customer Service Manager E-mail: mia.hagen@polymerlogistics.com

GOVERNMEN T R EL AT IO N S

New Laws for 2014 IN THE FIRST YEAR OF A TWO-YEAR CALIFORNIA LEGISLATIVE SESSION, 2,450 PIECES OF LEGISLATION WERE CONSIDERED AND WHILE ONLY A FRACTION BECAME LAW, THERE ARE A HANDFUL OF BILLS THAT WILL IMPACT THE GROCERY INDUSTRY IN 2014.

The year 2013 was a busy one for CGA’s government relations team. Below is a brief list of what CGA members-companies need to be aware of in 2014. In November, CGA hosted a 2014 New Laws webinar reviewing the most impactful pieces of legislation specific to the grocery industry. Visit www.cgaef.org to access the “2014 New Laws” webinar in its entirety.

Assembly Bill (AB) 10: California’s Minimum Wage The State’s minimum wage will increase to $9 per hour on July 1, 2014 and again to $10 per hour on Jan. 1, 2016. The bill’s original intent was to tie the minimum wage to an annual cost of living adjustment (COLA), but the employer community was successful in mitigating the damage by negotiating its removal.

Law in effect January 1, 2014 Assembly Bill (AB) 263: Employer Retaliation This bill adds unfair immigration-related practices to the existing labor law statute, expanding the law to protect undocumented workers from discrimination or retaliation based on their immigration status.

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This bill creates a penalty of up to $10,000 per violation. Violations as defined by this new law include: Requesting more or different documents than required by federal law, using E-verify at a time or manner not required by federal law, threatening to file or the filing of a false police report, threatening to contact or contacting immigration authorities.

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Moreover, this law prohibits any person acting on behalf of the employer from making, adopting or enforcing any rule, regulation or policy preventing an employee from disclosing information to a government or law enforcement agency. (Note: More detail on AB 263 can be found in the “2014 New Laws” webinar).

Law in effect January 1, 2014

Senate Bill (SB) 465: Slack Fill In 1997, the California Legislature identified a variety of reasons manufacturers should be permitted to have extra space in their packaging. Fifteen years after these slack fill exemptions became law, companies have faced enforcement actions in California for their product packaging. This new law expands protections for manufactures for slack fill in their packaging by adding 15 non-functional slack fill exemptions to the current statute.

Law in effect January 1, 2014 Senate Bill (SB) 667: Retail Sale of Shelled Eggs This CGA-sponsored bill sought to clean up the unintended consequences of legislation enacted in 2010 (AB 1437) in which retailers were subject to heavy fines based on producer non-compliance with standards of California’s Prop. 2. Specifically, retailers would have been strictly liable for conditions of egg-laying hens both inside and outside of California. This bill modified liability for retailers to a knowing. It is a nuanced, yet important distinction that CGA member-companies need to be aware of. In short, this bill did not establish compliance penalties, but rather gave membercompanies an added layer of protection.

Law in effect January 1, 2014 Senate Bill (SB) 770: Family Leave Expansion This law broadens the definition of family within the Paid Family Leave (PFL) program to allow workers to receive the partial wage replacement benefits while taking care of seriously ill siblings, grandparents, grandchildren, and parents-in-law.

Law in effect January 1, 2014 n

CAPITOL INSIDER

Two-Year Session Chaos The second year of a two-year session is different in many aspects than the first year. Instead of easing into the work year, legislators return in January with a bang!

January 6 marked the return of the California Legislature. Immediately they are faced with the deadline of moving bills introduced in the first year, but for one reason or another did not move out of their house of origin. They have two weeks to pass these bills out of committee, and another two weeks to pass them off the floor and move them to the second house.

If a bill simply isn’t ready, a new piece of legislation can be introduced and receive the benefit of moving through the “normal” process.

Theoretically, this deadline shouldn’t be pressing since they had the benefit of a year to work through the issues. However, as it goes, these bills often fall off the radar and do not receive the full attention needed until a deadline is coming, making for a hectic month.

If a bill simply isn’t ready, a new piece of legislation can be introduced and receive the benefit of moving through the “normal” process. January also includes the release of the Governor’s budget and the fanfare of the State of the State Address.

new bills, but they are likely also trying to finalize (fix) the two-year bills and hear those when time permits. Of course, spring recess in 2014 occurs right in the middle of April, which will stall the momentum and force it to pick up again upon the Legislature’s return. Amidst all of this committee chaos, which continues into May, the budget process continues.

Once May arrives, committees begin to wrap up their work on new legislation for the house of origin deadlines. Once the committee process is done, the Legislature must pass out any bills introduced in their house in order for the bill to remain alive.

Unlike the first year, when a bill fails to meet a deadline in the second year, it is dead (with a few exceptions). Cramming all of these deadlines into one month comes at the same time the Governor is providing his revised budget Continued on p. 24

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These new bills are required to be in print for 30 days prior to being heard in a committee, which creates a slow point in the calendar, unless you are reviewing all of the newly introduced bills. During this time, budget subcommittees

Once March passes and the new bills are eligible for committee hearings, April and May become very busy. Not only are committees hearing the

C A L I F OR N I A G R OC E R

Once the flurry of January ends, legislators and staff return their focus to new bills. February is bill introduction month — the “last” chance for legislation until the next session (with a few exceptions, of course). By the end of the month, approximately 1,500 to 2,000 bills will have been introduced.

will continue to meet to review and revise the Governor’s proposal.

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proposal, known in Sacramento as the May Revise, based on April tax revenues.

After everyone has posted their Memorial Day parade photos on Facebook and Twitter, they get to refocus on the second half of the legislative year. June is when bills are heard by committees in the second house. An esteemed staff member once told me, “one house, a bill does not make.” Second house committees take pride in putting their stamp of approval, with amendments, on a bill passed easily out of the house origin. This is also where inter-house rivalries can begin.

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While the committees “perfect” the bills, the Governor and Legislative leadership must finalize their budget negotiations and pass a budget by June 15 in order for the Governor to sign by it by the constitutional deadline of July 1. After congratulating each other for doing the work they are expected to do, the Legislature will take off the month of July for summer recess, not to be seen or heard from again until August (except for

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those Independence Day parade pictures on Facebook and Twitter, of course).

August always promises to be chaotic, and never disappoints. Midnight on August 31 is sine die, the constitutional deadline for all bills to be passed through both houses of the Legislature for consideration by the Governor (with a few exceptions, of course). That task alone will make August very busy, but so too will the surprises that always occur. It never fails that major policy proposals are revealed or resurrected in late August, keeping everyone on their toes as they focus on the legislative finish line. We are certain that 2014, the second year of this two-year session, will fulfill every expectation of chaos! n

This article was authored by Louie Brown, a partner in the Sacramento office of Kahn, Soares and Conway, LLP.

PERSPECTIVE

2014 Could Be a Big Year of California Tax Law Changes The California Legislature reconvened on January 6 to begin the final year of its two-year session, which is scheduled to conclude on August 31.

While CGA’s advocacy team will be busy on a number of policy fronts, we anticipate the tax arena will be an area of heavy activity.

With super majorities now secure in both houses of the Legislature during the 2014 session, we anticipate there will be a concerted effort to pursue tax law changes, including new revenue sources, and potential constitutional revisions affecting local authority to raise taxes.

Moreover, CGA is concerned about the Legislature imposing taxes on specific products regardless of perceived social values. Otherwise, different industries will be targeted for higher or selective taxes due to perceived social benefits, or products that are not politically favorable.

CGA members will recall that in the first use of the Democrats’ supermajority status last year, California’s Enterprise Zone (EZ) Program was eliminated, which represented an $800 million tax increase on California employers. Other beneficial tax laws are under threat as outlined below, and several measures will be debated this session on whether to raise taxes directly on particular industries. Among the topics of potential concern to CGA members are:

Both of these measures are two-year bills, so they can be considered again during this second year of the session. Both bill authors are very passionate about their legislation and are likely to pursue these proposals in some form.

Targeted Taxes on Industries n

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Sweetened beverage tax — This past year was a measure by Senator Bill Monning (SB 622) to impose a per drink tax on sweetened beverages and concentrate (one cent per fluid ounce), the so-called “soda tax.” It is estimated to generate almost $2 billion annually in revenue.

Repeal of Favorable Tax Treatments Assemblywoman Nancy Skinner (D-Oakland) is carrying AB 769, the same as a prior bill, which would disallow the use of net operating loss (NOL) carrybacks by individual and corporate taxpayers.

This law is generally conforming to federal law, although federal tax law is more generous.

The 2008 state budget deal included partial conformity to the federal allowance of NOL carrybacks (California law allows two years, while federal law allows as many as five years), which is unpopular with budget writers due to uncertainty regarding refunds that can be obtained under this law. Nonetheless, CGA believes this is a critical provision affecting small businesses in particular and the provisions of prior budget deals should remain intact.

Lower Vote Threshold for Local Taxes Local property and sales tax measures — In 2013, we saw a number of proposed constitutional amendments to reduce the vote threshold required for passage of these local taxes. These measures, with funds usually intended for either funding educational

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Both bills are being pursued based on their claimed public health benefits. There is a policy dispute over the potential impact of a soda tax on childhood obesity, and tobacco taxes have been a diminishing source of revenue for many years.

Legislative Advocate Aprea & Micheli, Inc.

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Tobacco products tax — Also last year was a bill by Sen. Kevin de Leon (SB 768) to substantially increase the tax on each pack of cigarettes ($2 per package of 20 cigarettes), as well as a one-time “floor stock tax” on cigarettes currently held by dealers and wholesalers. It is estimated to generate about $1.4 billion annually in revenue.

CH RIS MICHELI

Continued on p. 26

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PERSPECTIVE

Continued from p. 25

institutions or transportation needs, would either allow a 55 percent, or a simple majority approval of local voters, rather than the two-thirds majority vote required today. These measures would apply to the imposition, extension, or increase of a parcel tax by a city, county, or special district.

Other proposals deal with allowing local vote thresholds to be lowered for increased funding of fire and police protection services. A half dozen of these measures have carried over to the 2014 session and will be debated in the coming months. Although these proposed constitutional amendments do not require action by the Governor, they do require a two-thirds vote of the Legislature to place before the general electorate on an upcoming statewide ballot. CGA is concerned with increased opportunities to impose greater tax burdens upon businesses at the local level.

Split Property Tax Roll

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Disclosure of Taxpayer Data Another area that has been a hot topic in the past few years is increased corporate tax disclosure. This process has already begun in last year’s AB 93, which primarily repealed the EZ Program. However, in creating the new California Competes Tax Credit in AB 93, the Administration now requires public disclosure on the Franchise Tax Board’s website of specific taxpayer information, including how many jobs are created, how much in tax credits are claimed, etc.

Assemblyman Tom Ammiano (D-San Francisco) has been pursuing changes to the method by which commercial property is taxed throughout his tenure in the Legislature, either through a “change of ownership” measure, or an amendment to Prop. 13 to allow for a different rate between commercial and residential properties.

Prior measures opposed by CGA would have required annual disclosure on the FTB website of the 500 largest corporate taxpayers and the individual taxpayer’s state tax liability, charitable contributions, and income apportionment method. CGA believes specific taxpayer data should remain confidential and out of the hands of competitors.

Revisiting Prop. 13 was endorsed by then Los Angeles Mayor Antonio Villaraigosa and could result in several billion dollars annually to local governments. CGA is opposed to tinkering with Prop. 13 and does not support commercial property being reassessed at a higher rate.

Tax reform in California may also be driven by Congressional action, which may occur in 2014 after the bipartisan budget deal reached in early December.

The federal budget deal could set the stage for federal action on tax law changes and then we would determine whether California should conform to some or all of those changes.

Taxation of Services

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Depending on the number and types of services that would be subject to sales tax, such a proposal could result in billions of dollars in new revenues to state and local governments, so it is a popular topic among proponents of increased state spending. CGA is concerned with taxing services because it will result in higher tax burdens for groceries and place California businesses at a competitive disadvantage with neighboring states that do not impose such taxes.

Two years ago, there was intense lobbying in the Capitol over AB 2450 (Gatto) and AB 1963 (Huber). Last year there was broader discussion about “tax reform” and whether new sources of revenue could be found. One area long examined has been a services tax.

Extending the sales tax to services could take several forms, such as taxing all services, or a select number of them, and possibly lowering the rate for all purchases. Taxing intangibles could also be part of this proposal. California has the highest base sales tax rate in the nation.

Congressional tax writers are looking at ending some tax benefits, and possibly creating new ones. Fifty-five federal tax breaks expired at the end of 2013 and may be reinstated. We will continue to monitor federal action to determine whether it will result in California acting.

CGA and its member companies need to closely monitor the California Legislature’s activities in the state tax arena and prepare for significant threats of increasing the employer tax burden in this state. n

AT THE END OF EACH LEGISLATIVE SESSION, THE FOOD MARKETING INSTITUTE BEGINS THE PROCESS OF PREDICTING AND TRYING TO PLAN AN OFFENSE AND DEFENSE FOR THE NEXT SESSION. WE START WHERE MOST OF THE LEGISLATIVE BATTLES START — IN THE STATES. We poll each state grocery and retail association, and our FMI members to determine the likely battles that will pop up in each of the state legislatures. We then convene regional meetings so that the experts from each of the regions — West, Midwest, South and Northeast can share ideas and strategies for each of these issues. Finally, we publish a state-bystate report, which summarizes the leading issues expected nationwide.

In putting together a federal strategy, we follow a similar path. First, we develop a list of issues likely to be considered on both the legislative and regulatory fronts with staff input and our FMI government relations committee. We send a survey to our members and state associations making sure to request and receive input from companies across a wide range of sizes, formats and geographic

locations to make sure we find all of the potentially hidden issues.

After we have identified those issues likely to be considered — either because we want them to be considered or because we expect them on the political agenda — we try to identify the key players and the best offensive and defensive plays to try to achieve our goals.

Some issues are at the very top of our priority list, but didn’t make the 2014 priority issues list only because we see the likelihood of legislative or regulatory action on the issue in 2014 to be very low. This year, we also developed a forward-looking list of items we could see on the 2015 horizon to give us time to prepare — particularly if we need to do research or some softening of the soil in order to be ready in 2015. n

WA SHIN GT O N REPORT

Predicting Policy Battles in 2014

2014 PRIORITY ISSUES L E G I SL AT I VE

R EGU L ATORY ACA/Health Care Reform Implementation

Food Labeling (Menu Labeling, GMO Labeling, Product Dating)

National Labor Relations Board Enforcement/Regulations

Tax Reform (LIFO, Effective Tax Rates, Corporate/Pass Through Reform)

Food Safety Modernization Act Implementation

Hours of Service (34 Hour Restart)

Country of Origin Labeling

Minimum Wage with CPI Adjustment

Nutrition Labeling/Menu Labeling

Marketplace Fairness /Online Sales Tax

SNAP Food Policy

Pension Reform

Food Marketing Claims Enforcement/Regulations

Patent Trolls

Occupational Safety and Health Administration Enforcement/Regulations

Paycheck Fairness

Wage and Hour Enforcement/Regulations

Truck Weights

Privacy Enforcement/Regulations

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There are literally hundreds of issues we monitor, comment on, prepare background on, and definitely have on our radar screen every day that are not on this priority list, but we are still looking for opportunities to impact each of these and welcome your input and thoughts.

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

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Affordable Care Act Amendments (Full-Time Employee Definition, Health Insurance Tax/ Reinsurance Fee, FSA/ OTC, Part-Time Employee Coverage)

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WASHIN GT O N R EP O RT

What Will Congress Do? WHAT WILL CONGRESS DO (WWCD) IS AN APPROPRIATE QUESTION TO ASK AS WE KICK OFF A NEW YEAR AND WITH IT THE SECOND HALF OF THE 113TH CONGRESS. Surprisingly, 2013 ended on a bit of a high note with the passage of a two-year federal budget deal; however many of the same Congressional battles that were fought that year will continue in 2014.

Adding to the ongoing political tension in the nation’s capital is a mid-term election with the entire House of Representatives and a third of the Senate up for reelection in November. While there is never a shortage of issues impacting our industry, I’ve identified several that directly impact your business and will be on NGA’s front burner this year.

The Obama administration continues to struggle with the implementation of the Affordable Care Act (ACA).

There was a lot of talk in 2013 about comprehensive tax reform and we saw encouraging steps forward, but the reality of comprehensive tax reform is quickly fading. House Ways and Means Committee Chairman Dave Camp (R-MI) has delayed releasing his tax proposal until early 2014.

NGA has been very engaged with House and Senate Tax Committees from the beginning and will continue to work with key staff and offices, especially with regards to ensuring that any ongoing reform efforts are comprehensive, including parity for both C-Corps and pass-through entities and that Last-In, First-Out (LIFO) Accounting is not repealed.

A number of temporary tax provisions, including bonus depreciation, section 179 expensing, charitable giving of food, Work Opportunity Tax Credit, and New Markets Tax Credit, expired at the end of 2013.

NGA launched a grassroots effort in late 2013 urging Congress to take action by extending these tax provisions. We are pushing Congress to extend these “tax extenders” in 2014; however the longer Congress waits, the less likely businesses will be able to utilize these pro-growth provisions.

Our association is a steering committee member of the influential E-Flex Coalition, which has been focused on working with the Administration to obtain regulations that provide employers with the greatest flexibility and the least amount of reporting burdens.

Additionally, NGA has been lobbying Congress to support legislation in both the House and Senate that would increase the statutory definition of a “full-time” employee, which is currently set at 30 hours per week in the ACA. One of NGA’s members from Missouri testified in October before the House Small Business Subcommittee on Health in support of the legislation.

Chain Restaurant Menu Labeling NGA continues to champion bi-partisan legislation introduced in 2013 to prevent the FDA from expanding Chain Restaurant Menu Labeling regulations to grocery stores. The FDA has indicated the final regulation may be released by March 2014; however the agency has already missed numerous previous deadlines. NGA strongly urges retailers to ask their Representatives and Senators to support the legislation that would prevent these onerous labeling requirements from taking effect.

Immigration Reform

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The Obama administration continues to struggle with the implementation of the Affordable Care Act (ACA). As of mid-January, NGA and the employer community await the release of important regulations regarding reporting requirements.

Tax Policy

Meanwhile, Senate Finance Committee Chairman Max Baucus (D-MT), who announced in 2013 that he was not seeking re-election, has been nominated as the next U.S. Ambassador to China, making the prospect of tax reform even more unlikely.

Peter Larkin President/CEO National Grocers Association

Healthcare

Immigration reform is certainly an issue that is important to California grocers. Last year, the Senate passed an immigration reform bill, but the House did not bring anything to the floor for a vote. Given

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Kraft Foods would like to congratulate our very own Tiernan Summins on her nomination to the CGA Board of Directors

Q&A

Q&A

Q&A: Timothy Gorsuch TIMOTHY GORSUCH WAS APPOINTED DIRECTOR OF THE DEPARTMENT OF ALCOHOLIC BEVERAGES CONTROL (ABC) IN OCTOBER OF 2013. AS THE NEW CHIEF REGULATOR OF THE STATE’S ALCOHOLIC BEVERAGE INDUSTRY AND ITS 85,000 LICENSEES, HE DIRECTS MORE THAN 200 SPECIAL AGENTS IN CRIMINAL INVESTIGATIONS AND ENFORCEMENT MATTERS. Director, what will be some of your main Q. As priorities for 2014?

A.

I firmly believe that conducting thorough and complete licensing investigations is the foundation of ABC’s enforcement program and helps to provide a fair market place for our licensees to conduct commerce. Later this spring, ABC will be providing a comprehensive training course to our Licensing Representative staff to assist them in completing these investigations as quickly as possible so that businesses may open their doors sooner. In addition, I will be focused on finding available staffing solutions to reduce appointment wait times for those businesses desiring to file applications for new licenses.

When it comes to reducing alcohol-related tragedies, grocers and other ABC licensed establishments play a huge and critical role in preventing crashes from occurring. throughout the State continue to Q. Departments face fiscal constraints, what programs could be most affected in the 2014-15 fiscal year?

the economy steadily improves we expect A. As to see a continued increase in the number of

efforts of ABC?

it comes to reducing alcohol-related A. When tragedies, grocers and other ABC licensed establishments play a huge and critical role in preventing crashes from occurring. Businesses and their employees truly are the first line of defense by doing their part to check ID’s of youthful appearing patrons purchasing alcohol and by not selling alcohol to those who have already consumed too much.

When it comes to obtaining your ABC license, two main areas cause the application process to be delayed. First make sure you coordinate early and often with the various local governing bodies in your area to understand and meet their obligations to conduct business in their jurisdictions. Secondly, ensure the required license application documents are received by the ABC as quickly as possible. ABC cannot complete the application investigation without adherence to these issues. are some of the challenges and Q. What opportunities inherent in regulation of alcoholic beverage sales?

have to say the most significant challenge A: I’d would be the steadily growing number of exceptions to the tied-house laws that were originally established to safeguard the structure of the three-tiered system. Every year there are several new laws that are passed granting very narrow and specific industry segments additional privileges that remain prohibited to the rest. This often causes confusion within the industry that is already very heavily regulated.

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applications for new ABC licenses. As I’m sure your members are aware, during the height of the recent recession the number of authorized Department personnel was reduced by nearly 8% to achieve mandated savings requirements. Although most other state agencies suffered similar staff reductions, such a decline to ABC’s already modest staffing level could cause additional challenges for us to meet the growing licensing and associated enforcement responsibilities.

are some things that grocers in particular Q. What and licensees as a whole can do to support the

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Q&A

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With that said, the alcoholic beverage industry in California has the well-deserved reputation of being very responsible. With over 86,000 ABC licensed businesses in the state, the vast majority do their part to operate within the privileges granted to their licenses. oversees a wide variety of Q. Your licenseDepartment types and assists several other law enforcement agencies with enforcement. What factors do you use to prioritize resources and are there restrictions on your ability to do so based on funding sources?

All of ABC’s funding for our licensing and A: enforcement functions come from the license fees collected from our licensees. ABC historically receives between 3,000-6,000 complaints annually from concerned citizens and local law enforcement agencies. Each ABOUT TIMOTHY GORSUCH He received an associates degree in administration of justice from Shasta College in 1986 and a bachelor of science degree in criminal justice from California State University, Sacramento in 1988. The native Californian also received a certificate of leadership in law enforcement from the Federal Bureau of Investigation’s National Academy at the University of Virginia in March of 2009. n He was a construction manager specialist for the U.S. Department of Defense after he left CalState. n In 1999, Gorsuch was promoted to supervising investigator and assigned to the Stockton district office. In 2006, he was promoted to deputy division chief of Northern California and in 2007 was appointed as the acting assistant director of administration. n Outside the workplace, Gorsuch also served as a majorbattalion executive officer in the California Army National Guard for 1983-2004. n Gorsuch was appointed ABC chief deputy director in 2008

by Governor Arnold Schwarzenegger and was reappointed to the post by Governor Jerry Brown in June 2013. n Gorsuch replaced ABC Director Jacob Appelsmith, who left to become chief campus counsel at University of California, Davis in September 2013. Governor Brown announced his appointment as director in October. Gorsuch is a Republican.

Gorsuch is married. His interests include rock climbing, mountain climbing, snowboarding and wake boarding.

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complaint is analyzed by sworn district office management staff and evaluated for further investigation. For example, in fiscal year 2012-13, ABC received over 3,600 complaints that our sworn district office managers believed were serious enough and/or provided sufficient information to warrant an investigation.

As you know all types of crimes can occur in and around locations where alcoholic beverages are sold and consumed. Therefore to maximize the department’s enforcement efforts, complaints assigned for investigation are prioritized based upon the seriousness of their nature. The most serious are classified as Priority 1 complaints which include violations such as disruptive and disorderly premises, illegal narcotics activity, sales of alcohol to minors and to obviously intoxicated persons.

Priority 2, 3 and 4 complaints, while also serious, have a lesser immediate public safety impact and therefore received lower priority.

Due to the number of complaints received and the constraints imposed by our authorized staffing levels, the Department realizes a backlog of 1,800 to 2,400 complaints that go unworked annually. are available to retailers who Q. What wouldprograms like additional training in this area?

most common violations observed in and A. The around ABC licensed premises are discussed in the Department’s Licensee Education on Alcohol and Drugs (LEAD) course. During this free 3 ½ hour course ABC staff provide licensees and their employees ideas and strategies to resolve problems that could be occurring in or near their stores. These courses are held regionally several times a year and I encourage those in the retail alcohol business in California to take advantage of LEAD or any other available Responsible Beverage Server (RBS) training courses offered throughout the State. personal note, what accomplishments in Q. On youra career thus far mean the most to you?

Q&A

Every community has their own unique challenges that residents and businesses alike can come together to make a positive change. working here for over 20 years there A. After are so many things that come to mind; from flexing our policies when possible to help get businesses their license more quickly, to being part of the process to close down problematic businesses that continuously caused negative impacts in their communities and became a drain on law enforcement. But the one that is first and foremost in my mind is having had the privilege to work with and alongside so many talented and professional people in our industry.

would your advice be to retailers looking Q. What to improve the communities in which they live and work?

community has their own unique A. Every challenges that residents and businesses alike can come together to make a positive change.

Creating positive change does not have to be at the scale of solving world hunger or nuclear proliferation. I say this not to diminish the importance of such work, but to encourage all of us to take on the smaller-scale problems or opportunities that might be lurking right outside our front door. n

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Continued from p. 28

the significant political pressures from both the right and left in this election year, it remains to be seen if the House can muster enough votes to pass a bill that could be reconciled with the Senate passed bill, especially over contentious issues such as border security and a path for undocumented workers.

The NGA Board of Directors approved a policy position in 2013 that calls for comprehensive immigration reform, including mandatory e-verify for employers, with very strong employer safe harbor protections as well as a path forward for the 11 million undocumented workers currently working in the U.S. We continue to work to see actual immigration reform become a reality.

Food Policy/SNAP

C A L I F OR N I A G R OC E R

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In June, NGA helped to lead a retailer effort that handily defeated a SNAP reporting mandate amendment in the House as part of the Farm Bill.

The amendment would have mandated the collection and reporting of data on every food item (complete or partial) purchased with SNAP benefits to include the label description and brand name, size of the item, number of units sold, and aggregate cost of each item.

As of this writing Congress continues to wrestle with the Farm Bill. House and Senate Agriculture Committee leaders have reached agreement on funding for some of the most contentious areas including the provisions on commodities and food stamps, which we expect will be cut back by around $8 billion over 10 years. Once key Members of Congress are able to come to an agreement on the dairy reforms in the bill we expect the measure will finally win Congressional passage. n

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KN O W T HE L AW

Employment Law Update: 2014 THERE ARE MANY NEW EMPLOYMENT LAWS GOING INTO EFFECT IN 2014. HOW ARE THEY GOING TO IMPACT YOUR COMPANY? A number of new employment laws take affect on Jan. 1, 2014. Retailers should be familiar with most of them and pay particular attention to several important employee protections.

Unfair Immigration-Related Practices On Oct.11, 2013, Gov. Jerry Brown signed into law AB 263, which is aimed at protecting applicants and employees in the workplace from wage theft, regardless of immigration status. Assembly Bill 263 makes it unlawful for an employer or any other person to engage in, or direct another person to engage in, an unfair immigration-related practice against a person for the purpose or intent to retaliate against that person for exercising any right protected under the California Labor Code or under a local ordinance applicable to employees (e.g., an employee complains that he or she is owed unpaid wages).

The bill also creates a rebuttable presumption that an adverse action taken within 90 days of the exercise of a protected right is committed for the purpose of, or with the intent of, retaliation. Thus, employers will be required to put forth evidence to overcome this presumption in the face of a claim alleging such temporal proximity.

Under the new law (Cal. Labor Code Section 1019), an “unfair immigration-related practice� includes: 1. Requesting more or different documents than are

required under Section 1324a(b) of Title 8 of the United States Code, or refusal to honor documents tendered pursuant to the same section that on their face reasonably appear to be genuine;

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2. Using the federal E-Verify system to check the

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employment authorization status of a person at a time, or in a manner not required under Section 1324a(b) of Title 8 of the United States Code, or not authorized under any memorandum of understanding governing the use of the federal E-Verify system; 3. Threatening to file, or filing a false police

report, or threatening to contact, or contacting immigration authorities.

It does not include any conduct undertaken at the express and specific direction of the federal government.

An employee who was retaliated against or otherwise was subjected to an adverse action as set forth above is entitled to reinstatement and reimbursement for lost wages. Of particular note to retailers, the bill further authorizes a court to order the appropriate government agencies to suspend certain business licenses held by the violating employer for prescribed periods of time based on the number of violations.

A number of new employment laws take affect on Jan. 1, 2014. Retailers should be familiar with most of them and pay particular attention to several important employee protections.

Grocers and retailers with large workforces should be concerned about this new law, as it provides an additional avenue for applicants and employees to initiate costly litigation.

Criminal Background Checks California Labor Code Section 432.7 already prohibits employers from considering information concerning an arrest or detention that did not result in a conviction or a referral to a criminal diversion program.

Senate Bill 530 expands these prohibitions by making it unlawful for employers to ask applicants about criminal records that have been expunged, sealed, or dismissed by a court or to use information relating to such criminal records as a factor in determining any condition of employment.

Employers are exempt from these new prohibitions under four circumstances: (1) the employer is required by law to obtain the information; (2) the job position requires the applicant to possess a firearm; (3) a convicted criminal is prohibited by law from holding the position regardless of whether that crime was judicially dismissed, expunged, statutorily eradicated

K N O W T H E L AW

or ordered sealed; or (4) the law prohibits the employer from hiring an applicant that is a convict.

To prevent liability, grocers and retail employers should review their job applications to ensure that they take into account this new category of criminal records, verify that third-party screening firms and/ or contractors are in compliance with the new law, update employee handbooks, if necessary, and train interviewers on the parameters for what may and may not be asked of applicants.

New Protected Class in California: Military & Veteran Status Prior to the enactment of AB 556, the California Fair Employment and Housing Act (FEHA) did not expressly prohibit discrimination based “military and veteran status.” Effective Jan. 1, 2014, AB 556 adds “military and veteran status” to the list of categories protected from employment discrimination under the FEHA. “Military and veteran status” is defined as a member or veteran of the U.S. Armed Forces, U.S. Armed Forces Reserve, the U.S. National Guard, or the California National Guard.

Despite this change, employers may still use military and veteran status for the purpose of awarding a veteran’s preference as permitted by federal and state law.

To comply with the FEHA’s new mandates, employers should review any applicable language in their job applications and update their employee handbooks to add military and veteran status as a protected category for purposes of equal employment, discrimination, and harassment policies.

Crime Victims Under California Labor Code Section 230, employers will be required to provide “reasonable accommodations” to victims of domestic violence, sexual assault, or stalking, such as transfers, reassignments, modified schedules, or changed work numbers or work stations, unless the accommodation creates an undue hardship.

In determining whether accommodations are reasonable, the employer should consider the circumstances or dangers facing the employee.

Employers may require employees to provide a signed, written statement certifying that the accommodation is for the purpose of keeping the employee safe or because of his or her status as a victim.

The certification may be a police report, a restraining order or similar court order, or documentation from a licensed medical professional, licensed health care provider, or counselor that states the employee is undergoing treatment resulting from domestic violence or sexual assault. Employers may request this certification be updated every six months.

Section 230.5, a new addition to the California Labor Code, will prohibit employers from discriminating or retaliating against victims of certain serious crimes for taking time off from work to appear in court or any other related proceeding.

However, the entitlement of any employee to time off under this section may not be diminished by any collective bargaining agreement term or condition. n

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Monica Hans is an attorney in the Employment Law Practice at Downey Brand LLP, in Sacramento, California. Her practice focuses on advising employers on labor and employment law compliance and litigation defense.

C A L I F OR N I A G R OC E R

Such employees may use vacation, personal leave, or compensatory time off that is otherwise available to the employee under the employer’s policies, unless otherwise provided by a collective bargaining agreement, for time taken off for a purpose specified in this section.

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SURVIVOR

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COVER STORY:

INDEPENDENTS

Many people are fans of the television show “Survivor.” But these people have nothing on independent grocers for whom survival is something you have to fight for tooth and nail every day.

Battered by unyielding legislation, over-regulation, increasing competition from every retail segment and the higher cost of goods, family-owned independents are not only surviving, but growing as the California economy limps back from the recession.

California Grocer talked to Richard Draeger, Draeger’s Supermarkets, John Spencer, Spencer’s Fresh Markets and Dave Larson, Piedmont Grocery to get the entrepreneur’s perspective on where the business has been and where it’s going.

CALIFORNIA GROCER: Looking back, how would you characterize 2013?

DRAEGER: “Overall, it was a very good year for independents. Customers began trading up in the average value of items purchased. Our data indicates that consumer confidence is growing enough to keep it going this year.

“We are also going to see more people who were on the margins and directly impacted by the economic downturn who traded off to lower priced stores. They’re

feeling better about business conditions and therefore feel they can afford a higher quality experience.”

LARSON: “It all depends on whether you’re union or not. Probably the thing with the biggest impact for us was health and welfare. We knew costs were going up and our union members now have to pay for dependents. Independents that are non-union may save a lot of money in medical by having employees go to the Obamacare pools.”

SPENCER: “It was a struggle in many ways. The entry of national companies like Dollar General put a lot of pressure on independents throughout the state, especially in rural communities. Some have even sold out to them.”

CALIFORNIA GROCER: What’s the Answer?

SPENCER: “Well, the biggest challenge of all is the cost of goods in the supply chain that will enable us to compete not only against Dollar General, but also Target superstores, and even Home Depot.”

Continued on p. 38

SURVIVOR

C O N TI NU E D

Continued from p. 37

CALIFORNIA GROCER: Home Depot?

SPENCER: “You walk in and go through aisles of groceries before you find your first hammer.

Everyone’s selling groceries. The erosion of center store has been hard on independents. Things are far different then they were 10 or 12 years ago.”

LARSON: “I agree. But last year was very good for us. A real turn around. Our marketing area has more people then it did and they are doing better.

Overall, our sales for the year were up 3.5 percent and tonnage was up 1.5 percent.”

CALIFORNIA GROCER: Do you see consumers getting out of that recessionary frame of mind and loosening the purse strings?

LARSON: “It feels like it. This will be the telltale year on whether or not things have turned around.

We’re off to a pretty good start. I like to think that a rising tide raises all boats. Grocery staples seem to be leading the way. If we see meat doing well, the whole store is doing better.”

DRAEGER: “Silicon Valley is a Mecca that continues to attract tremendously talented people. As they benefit from development of their businesses, they are definitely spending more money with us.”

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SPENCER: “I don’t think we’re seeing that loosening up yet in grocery. This industry survives on having

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a healthy sales mix across the board. Consumers are still looking for bargains and the mix of ad products in grocery and perishables is higher than it’s ever been.

Ten years ago people came in your store with one shopping list. Today, that list says Spencer’s, Vons and Albertsons. They go around cherry picking.

“We also have to look at the erosion of profitability due to changes in monetary compensation. Ten years ago, people were using plastic for maybe 35 percent of purchases. Now it’s near 70 percent. That extra percentage is probably costing retailers 2 percent on their bottom line.”

CALIFORNIA GROCER: What should independents be doing?

SPENCER: “Look at some of the new business models like Sprouts, Henry’s and Fresh Markets.

They are taking a page from Trader Joe’s with smaller footprints and combating shrinking center store sales by having perishables drive the business.

Independents have to get on the ball with that rather than carrying 10 different kinds of whole kernel corn.

CALIFORNIA GROCER: What do you suggest?

SPENCER: “We have to cut back and put the dollars tied up in inventory into the perishable departments.

Most independents will tell you that if it weren’t for perishables they’d be out of business.”

SURVIVOR

CALIFORNIA GROCER: And beefing up other perimeter departments?

SPENCER: “Oh yes, with every capital dollar we can spend — not on adding footage to dry grocery.

We spend it on new service deli and produce cases, meat counters and for prepared meals. More people — especially households with two people working — look at grocery shopping as a chore. We want to make it something they look forward to.”

CALIFORNIA GROCER: Is this impacting their consumer shopping habits? And how?

LARSON: “I don’t have a real answer for that. We find that our customers are pretty consistent in what they’re buying every week. No major shifts in any one direction. But as I said, meat and a lot of grocery sales have picked up. And customer count is now up about 4 percent. We’re just going to keep doing what we’re doing.”

DRAEGER: “The perimeter is benefiting, not only from higher disposable incomes, but also because people want to stay away from processed products.”

2013, we spent a lot of time talking to our people and communicating what we were doing. All of a sudden things were pushed back. In essence everything we did just kicked the can down the road. I’m concerned about the employer mandate and cancellation notices from insurance companies. I’m awake nights thinking about how I’m going to take care of my most valuable asset — my people.”

DRAEGER: “There’s a lot of regulatory overreach and the number of bills being passed yearly continues to increase. In 2013, the majority were probably local bag ordinances. Most of them followed the same playbook so even local ordinances were somewhat uniform. In Danville they didn’t, so our store there is in a holding pattern.”

CALIFORNIA GROCER: What else concerns you?

DRAEGER: “Our freight costs, and that of our vendors are also going to be affected by rules on emissions from mobile refrigeration units. Then, we’re looking at changes in workers’ compensation.

In fact, we’re expecting a 12 percent change and some of the rules are starting to take effect.”

Having been a member of the CGA Board of Directors, it’s become apparent to us that the association really represents the interests of the independent.

SPENCER: “Obviously, bag ordinances are the big thing. Just about all the counties have done it, but there’s something else. About a year ago we quit selling cigarettes. For one thing sales weren’t significant and there were too many state and county fees and licenses. It just wasn’t worth it.

LARSON: “We also have a website and weekly blog.

After being here 112 years, you assume people, including those moving into the area, know you’re here. I think the blog is helping us get a lot of new, young customers. There’s a foodie group starting to build in this area.”

“Recently I got a call from someone in Santa Barbara County wanting to know why we no longer have a cigarette license. I told them there were too many fees attached. Then they asked: ‘What can we do to get you to do it again?’ They want people to stop smoking, but they also want the extra tax dollars.

They nickel and dime you to death and it’s just not worth it.”

CALIFORNIA GROCER: Is the demographic profile changing?

CALIFORNIA GROCER: When it comes to government initiatives, what’s keeps you up nights?

independents to take an active role in CGA to help fight these policies?

DRAEGER: “Having been a member of the CGA Board of Directors, it’s become apparent to us that the association really represents the interests of the independent. They’ve done a great job with people who represent CGA at the local level. The more Continued on p. 40

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SPENCER: “Healthcare is a huge concern. We thought we were prepared to deal with it. In mid-

CALIFORNIA GROCER: How important is it for C A L I F OR N I A G R OC E R

LARSON: “Not really. We cut across all demographic groups. Every time we do a marketing survey we find that we have a pretty eclectic bunch of shoppers.

That’s one reason our sales have been consistent.”

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C O N TI NU E D

Continued from p. 39

you’re involved with CGA, the more they understand all our concerns.”

CALIFORNIA GROCER: What other competitive issues?

SPENCER: “Our biggest challenge in 2014, and for the next three years, is controlling the cost of goods in order to be competitive and grow market share. We just have to adapt our way of doing business to deal with these issues. Cost of product to be competitive and grow market share will be the greatest challenge independent grocers face.”

LARSON: “You also have to look at the type of competition. It’s fascinating that everyone’s decided that they want to sell food. All they end up doing is beating the crap out of themselves in trying to have the lowest price. It all goes back to how loss leaders were developed. The guy across the street decides to sell mayonnaise for $1. Then the next week someone else tries to get back at him by not only selling mayonnaise for $1 but ketchup for 50 cents.”

CALIFORNIA GROCER: Do you see additional competition coming in?

LARSON: “We have a pretty heavy residential apartment population already. A big Walmart, for example, just won’t happen. They’d have to take out an entire block of homes.”

CALIFORNIA GROCER: How do you feel 2014 is shaping up?

DRAEGER: “The state is experiencing a gradual improvement on the part of consumers, versus overall tax revenues. A lot of revenue increase at the state level had been driven by capital gains and that’s all stock market, investor-related revenue.

“The consumer is coming along gradually from the recession. It took away so much confidence that they are not quick to change the habits they acquired during a dire economy. It was a lesson painfully learned. It may be years before consumers get back to the same level of spending they did in 2007.

Our biggest challenge in 2014, and for the next three years, is controlling the cost of goods in order to be competitive and grow market share.

“Just look at the spending that was going on in 2001 in Silicon Valley before the NASDAQ crashed. Those levels have never been regained. Retailers have to change their business plans and reinvent themselves in order to appeal to customers.”

LARSON: “Again, I have to mention healthcare. It’s very confusing and I don’t think we’re going to see the real impact of it until later this year and maybe into 2015. Multi-employer union contracts expire next October. It’s going to be interesting.”

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C A L I F OR N I A G R OC E R

SPENCER: “Differentiation is essential. Produce is as much of a business driver as anything. Meat has been that way for quite some time. You have to be the best out there and build your reputation.

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“We’ve done it with private label. We do a lot of things in-house. A year ago we put out our own brand of salsa and each of our stores sell 1,200 to 1,500 packages a week. We also make our own sausages with unique flavors like apple cheddar, jalapeno and blue cheese; product that is unique. The more we can get people to try the Spencer-specific items, the better off we are.”

CALIFORNIA GROCER: That speaks to the adaptability of Independents?

SURVIVOR

SPENCER: “True. We react to our neighborhood and that’s a big advantage for us. At Spencer’s I do six live infomercials every morning on six different radio stations. If a produce guy calls and says he has a deal on strawberries, I can talk about them the next morning to drive sales.

“It’s been very productive to get the word out quickly to our customers. It erodes the stigma that we’re overpriced. I’ve spent a lot over the years on that and I wish I had that money back.

“It’s tough to break down those walls when they think Wal Mart is cheaper than us every day. It’s not always true, but it’s hard to prove day-after-day, or even hour-after-hour. Let’s face it. There’s not a more discretionary dollar that the family spends than on food.

“You can’t change the house, or car payment.

Chances are if a family has to peel back 10 percent on spending, it will be on food and that’s where being adaptable comes into play.”

DRAEGER: “I think we’re quick to recognize these trends in the market, some of which can only be addressed through large capital expenditures. The most fundamental changes in our business will be affecting branded products. These items can be purchased everywhere from warehouse stores to Amazon. Independents can create their own e-commerce platforms, but the best way is to find the next value-added aspect of your business that Amazon’s not addressing. It’s always a question of seeing what’s next?”

Chances are if a family has to peel back 10 percent on spending, it will be on food and that’s where being adaptable comes into play.

DRAEGER: “There’s a huge awareness among consumers that the foods they have been eating are not the best. They want foods that are healthier.

They want to know which foods should be left out of their diet and which should be brought in to improve the quality of life. We need to do more then just market these items. We need to be a solution for our customers. If customers feel their concerns are your No. 1 priority, they will come back. They are looking for us to walk the talk.”

LARSON: “The home delivery business is going to be a big issue. We did it from 1902 to 1958.”

CALIFORNIA GROCER: Thinking of starting up again?

LARSON: “Maybe. Safeway’s doing it. We know how to organize the people inside our store so we can have stock for delivery orders and not kill ourselves. The biggest cost is putting the orders together in the stores.”

CALIFORNIA GROCER: What do you think of Amazon?

LARSON: “This is a major issue for the entire industry. When you get an online retailer like them, or maybe Google, with a delivery system, it will be brutal and will eat into independents and chains.”

CALIFORNIA GROCER: How do you fight back?

LARSON: “Get an Amazon budget! But seriously, you have to figure out why people come to your store.

We connect with the community with high quality products and we’ve been able to adapt to whatever people wanted. You can come into my store and say you want six New York steaks cut a certain way.

That’s our appeal to the customer.” 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 U.S. 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

C A L I F OR N I A G R OC E R

LARSON: “I think independents are only limited by their own imagination and maybe some financial limitations. You have to pick the right trends to react to. Grab and go meals are a big cone but I’m not sure how much farther the food hall layout can go in supermarkets. I am sure that trying to go lowball with other retailers is just not a good direction to take.”

CALIFORNIA GROCER: So, what is next?

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BAL ANCE

LEN L EW IS

For Independents

It’s All About

Bala

COVER STORY:

INDEPENDENTS

“The issues driving independent, family-owned businesses are of course similar, but there are different contexts,” says Sheridan, a 35-year veteran of Elizabeth, N.J.-based Wakefern, the largest retailer-owned co-op in the country.

nce

During his tenure as NGA chair, Sheridan said the Association was always reminding independents that they are the epitome of the American dream.

“But,” he warns, “it comes with a lot of responsibilities. The first thing is to survive every day and that alone presents a lot of challenges.

The real question is how to go from survival mode to growth.”

Clearly, issues like healthcare reform and cuts in SNAP (Supplemental Nutrition Assistance Program) benefits are having significant consequences.

“I have no predisposition on healthcare ¬– good or bad,” he says. “Things like Target taking benefits from part timers has an impact on the entire competitive set.”

Sheridan said no one in the industry could have predicted SNAP’s impact on consumer purchasing patterns.

“When you take 15 percent of a person’s food purchasing capacity away from them, it forces them to make choices,” he says. “That means less for them and less commerce,” noting that SNAP benefits can account for 35-40 percent of payments in some ShopRite supermarkets. Quite simply, the burden of new regulation and requirements fall on individual businesses.

In this case knowing the community really matters.

“That’s kind of a sound bite these days,” Sheridan says. “Independents know local families, what items

C A L I F OR N I A G R OC E R

What’s the grocery business really all about? For Joe Sheridan, president and chief operating officer of Wakefern Food Corp., it all boils down to one word — balance!

“Everyone is challenged by things like Obamacare, national economic malaise and deflation,” says Sheridan, outgoing chair of the National Grocers Association. “But an independent is a self-sustaining entity. You are your own government relations and human resource department. Everything you do is personal and has a bigger impact.”

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Continued on p. 44

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BAL ANCE

LEN L EW IS

Continued from p. 43

are important to them, and makes sure that high value staples are available at fair prices.

“When people go through hard times they know every cost and what they’re spending,” he adds. “When you use that model, the independent is closer to that cost reality and can react quicker.”

Interestingly, Sheridan feels that independents are in a better place to deal with legislative and regulatory issues than some chains.

“This is where independents stand tall,” he says. “A chain may have government relations people for their state, but many independents are on a first name basis with senators and congressmen, and a collective voice driven by their association that allows the message to get through.”

One recent example is the discussion over GMOs. “The maddening thing is that we could have different rules for every state,” Sheridan says. Connecticut just passed GMO legislation. In order for it to become active, four contiguous states — with the exception of Vermont — have to pass a similar law.

When it comes to competitive issues, independents have to pay attention to both the brick and mortar and digital worlds.

“One of the biggest threats for retailers is not recognizing the new power of digital,” he says. “The consumer is changing and the rate of change is

Independents that are experimenting with things like Facebook, smartphones and online delivery will adapt quicker to the new environment. accelerating. Consumers are forcing the migration of certain categories to the digital space. Independents that are experimenting with things like Facebook, smartphones and online delivery will adapt quicker to the new environment.”

Sheridan said the grocery store isn’t just about perishables, or grocery but much more.

“It’s about vitamins, greeting cards, high-end pet food, cosmetics, energy bars — all the categories that are growing,” he says. “Maybe Target and Walmart were affected (by digital) before us because they have categories like clothing, sporting goods, shoes and electronics, but we’re not insulated. We’re just further back on the tail of what’s happening.”

The key for independents is to share best practices and ideas in digital.

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C A L I F OR N I A G R OC E R

“Consumers are bringing this pattern of purchasing with them as they get older. This means organizations have to change their cultures and capabilities,” said Sheridan. But whether retailers can react to the digital world while improving the in-store experience is the big question.

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“We’re looking at that right now,” Sheridan says.

“Digital is great for efficiency, but the human touch in brick and mortar is the tie-breaker. In five years, I can see people walking in with their phones or tablets, scanning it at a kiosk, then walking around the store to talk to pharmacists, nutritionists or culinary experts.

“This hybrid form will win — not the pureplays,” he said, noting that Amazon will be a great competitor, but will not be taking over the world.

This is increasingly true of ShopRite owners.

“As the next generation of family leadership emerges, there will be more acceptance of that,”

BAL ANCE

he said. “We have an e-commerce strategy where the committees are headed mostly by the next generation. They don’t have hang-ups. They’re contemporary and question everything.”

“Adaptability is the common denominator and I don’t think anyone does it better than families.”

But the make up of these independents may be quite different than it is today.

“You will earn what you get,” Sheridan says. “The new normal for digital and brick and mortar retailing, consumer behavior and the economy will find it’s own rhythm. Those that come through all this will be the best operators that the retail business has ever seen.

But if you only do this year what you did last year, you’re falling behind.” n

“We have a lot of different people coming in on the East Coast I see a crescendo of new entrepreneurs that all do something different whether it’s a farm-totable operation, kosher or halal,” he says.

“Of course, a lot of ideas burn bright, then go away and a new form of competition comes in,” he adds.

The new normal for digital and brick and mortar retailing, consumer behavior and the economy will find it’s own rhythm.

As to 2014, Sheridan sees it as a year for fundamentals.

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 U.S. 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

The 34th annual Natural Products Expo West, co-located with Engredea and the NEXT Innovation Summit, will take place March 6-9, 2014, at the Anaheim Convention Center.

The event is poised to draw over 60,000 attendees and feature over 2,500 exhibitors across natural and specialty foods, organic, supplements, health and beauty, natural living and pet products.

Beyond the exhibit floor, outdoor events, including a farmer’s market atmosphere at the Fresh Ideas Organic Marketplace, community celebrations at the Evenings on the Plaza, and off-site tours are just some of the other events that round out Expo West to make it the place to celebrate, connect and collaborate.

Registration is open to qualified members of the industry. Visit www.expowest.com for complete information. n

C A L I F OR N I A G R OC E R

“Every year at Expo West, the combined energy of new products, new relationships along with legacy brands and longtime partnerships creates an energy that resonates throughout the Anaheim campus and drives the industry forward,” said Adam Andersen, Natural Products Expos group show director.

The show continues to grow in space as well, now encompassing over 1.2 million gross square feet and taking over the Anaheim Convention Center’s Arena and Arena lobby. The NEXT New Product Pavilion will host hundreds of first-time exhibitors and hot products.

SUPPLY L INES

Opportunities for growth abound at Natural Products Expo West

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Q&A

COVER STORY:

INDEPENDENTS

TOM WENNING

A Capital Career

EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL TOM WENNING RECENTLY ANNOUNCED HIS RETIREMENT FROM THE NATIONAL GROCERS ASSOCIATION (NGA) AFTER 31 YEARS OF SERVICE WITH THE ORGANIZATION. CALIFORNIA GROCER ASKED TOM TO REFLECT ON HIS CAREER IN THE GROCERY INDUSTRY AND HIS LONG INVOLVEMENT WITHIN THE POLITICAL ENVIRONMENT OF WASHINGTON, D.C. Was the grocery industry a “niche” that your did you initially become involved with the Q. law firm felt it was uniquely equipped to serve?

Q. How grocery industry?

was in private law practice for about 10 years A. Iwith my father-in-law, Henry J. Bison, Jr., and we provided government relations and legal counsel to our clients, many of which were grocery industry organizations. These included the National Association of Retail Grocers of the United States (NARGUS), the National Food Brokers Association and the National American Wholesale Grocers Association.

When NGA was formed in 1982 (the result of a merger between NARGUS and the Cooperative Food Distributors of America), the opportunity to serve as executive vice president and general counsel for NGA materialized — and I became involved with the organization full-time.

was a niche, especially as it pertained to A. Itindependent retail grocers and wholesalers. To keep the playing field level with larger grocery chains, independents needed to work together more so they could leverage their power and increase their clout. This was particularly true in areas like government relations to monitor legislation and regulatory issues. We felt that we could provide that expertise at the law firm — and that essentially is what my career at NGA was focused on, as well.

Continued on p. 48

Q&A

Continued from p. 47

had a long and successful career in Q. You’ve government relations for the grocery industry.

As you reflect on your career, what were some of the highlights?

as an advocate on behalf of retailers A. Just and serving wholesalers in and of itself was a highlight.

It didn’t matter if the issue was about labeling, taxes or food safety, our job at NGA was to try to make life easier for our members and it was indeed an honor to do that.

In terms of specific events that were highlights, I would say the passage of the Durbin Amendment (with the Dodd-Frank financial reform legislation) that limited debit card swipe fees was definitely a highlight. It was a long and hard-fought battle but in the end, it represented a tremendous victory not just for NGA members, but for retailers across the United States because it helped reduce costs and keep them competitive in the marketplace.

A second highlight was the imposition of the current $5.340 million exemption (per individual) indexed to inflation for the federal estate tax. While it isn’t a full repeal of the tax, which NGA still seeks, it’s better than the alternative exemption amount, which was $1 million. For family-owned businesses — like many independently-owned grocery stores — the implementation of the larger exemption was welcome relief.

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Q. Any low points? current status of the antitrust litigation A: The in which NGA and others challenged the anti-

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competitive setting of swipe fees and rules by the credit card companies and the big banks.

We don’t yet know the outcome of this litigation because NGA and many others are challenging and appealing the Court’s decision but, as always, our industry is engaged in the battle.

A second disappointment for our industry, I believe, is the country of origin labeling issue.

As time passes, this issue seems to be getting worse and more onerous for retailers instead of getting better.

did you enjoy most about your job over Q: What the years?

part about my job, without question, was A: Best the gratitude and expressions of appreciation that I received from retailers and wholesalers at meetings and industry events across the country on a regular basis. Without fail someone would always approach me during these gatherings and let me know how much they appreciated what we did for them or on their behalf, particularly in areas like government relations which were difficult for a single business owner to address on their own.

I truly believe that face-to-face interactions — that personal touch — is still very much a part of the equation in our business. have politics changed during the course of Q: How your career?

say the biggest change during my career A: Iiswould how technology has literally revolutionized the political process. When I first started, the entire political process was a paper-driven process. When something happened on the Hill, it would literally be about a week before you even read about it in the Congressional Record.

Today, the process is much more efficient and transparent — news and information is available electronically moments after it has occurred and Congress, as a general rule, moves faster because of it.

There is a downside, however, to greater speed and efficiency. Technology tends to reduce and diminish personal interactions between members of Congress and their constituents and that’s not necessarily a good thing. I truly believe that face-to-face interactions — that personal touch — is still very much a part of the equation in our business. legislators or government officials Q: Which would you name to a grocery industry “Hall of Fame” (those who have significantly helped our industry and the consuming public)?

Q&A

would name five, all of whom I believe were A: Ivery responsive to the needs of our industry and who regularly listened to our perspectives on various issues. At the top of my list is the 41st President of the United States, George H.W. Bush, who not only came to the NGA Convention in 1992 to address our membership, and met with the NGA Board in 1986 on tax reform as Vice president, but he was a politician who always was willing to engage us on a variety of issues and concerns. He never let politics get in the way of finding a solution to a problem.

My second choice would be former U.S. Representative Leon Panetta (D-Calif.) who, as a member of the House Agriculture Committee, was always open to working with NGA on such issues as food stamps and product labeling.

He came to our conferences many times to discuss policy and was always willing to forge a compromise when the situation required it.

Third, I would nominate former U.S. Senator John Kyl (R-Ariz.) who understood the needs of families and businesses and helped champion changes to the estate tax that benefitted our industry.

Everything can always be improved, however, I believe that our industry has done a good job of collaborating on a number of issues with other trade associations.

more of a burden or less of a burden Q: Isonthere grocers today as a result of legislation and

strong is the grocery industry’s Washington Q: How lobby today? Can it be improved?

Everything can always be improved, however, I A: believe that our industry has done a good job of collaborating on a number of issues with other trade associations to present a commonly held viewpoint. An excellent example of this is the unfair credit card swipe fee issue.

We didn’t look at it as merely a grocery industry issue, we felt it was an issue that affected any business that was paying unfair and excessive fees. By collaborating with all the other associations and other industries in the Merchants Payments Coalition, I believe we were better able to get our viewpoint heard and understood.

At NGA, we’ve recently expanded our lobbying efforts both internally with staff and with external resources, established a Political Action Committee, and we’ve made great headway into new technologies that are making us faster and more efficient in communicating with our members so they can communicate effectively with their senators and representatives. do you think the future holds for Q: What independent retailers and wholesalers?

there are always ups and downs A: inAlthough the business cycle, I am very optimistic about the future for independents. Some of them are doing some really amazing things

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regulation that occurred during your tenure on the Hill?

While science and new innovations often add speed and efficiency to operations within the marketplace, these same innovations can lead to more problems for retailers and consumers alike — like data security, or issues arising from mobile payments. New innovations like these invite new legislation and greater regulatory involvement which can — and often does — lead to greater compliance issues and burdens for the merchant.

C A L I F OR N I A G R OC E R

Senator Dick Durbin (D-Ill.) deserves induction for his efforts to support merchants by pushing his Amendment to the Dodd-Frank bill that limited the swipe fees imposed on retailers throughout the U.S. My fifth nominee would be U.S. Senator Orrin Hatch (R-Utah) for his many years of commitment to tax reform and maintaining fair and balanced relations between merchants and organized labor.

I would say there is a greater burden on A: retailers.

Take technology, for example.

Continued on p. 50

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Q&A

Continued from p. 49

with technology and the Internet — they are communicating directly with their customers and the result is greater sales, increased loyalty and better and more timely information. It’s exciting. I think the future will be very bright.

Q: Any advice for your successor?

Peter Larkin has done a great job in leading A: NGA and planning for the transition. I have

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every confidence in him, in Greg Ferrara as my successor, and the entire government affairs team. I have had the pleasure of working very closely with Greg for the past eight years. He has

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an excellent grasp of the issues, knows the right people and I couldn’t think of a better person to take over government affairs. He has earned his spurs, so to speak. It’s his turn. pearls of wisdom or truisms that that you’d Q: Any like to pass on to the rest of us?

one thing I’ve learned in this position A: Ifit’sthere’s this: Just because a legislator opposes you on one issue, it doesn’t mean that they will be against you on another issue down the road.

In other words, never burn a bridge — today’s opponent may be tomorrow’s ally. n

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DOOMED?

LEN L EW IS

DOOMED?

Is Center Store

DOOMED? Is the long-suffering center store doomed to be the stepchild of the supermarket as more sales migrate to other departments or other channels? Or can retailers and manufacturers breathe life into this extensive and potentially profitable piece of retail real estate?

Arguments can be made on both sides of the issue.

But improving the customer’s shopping experience, developing innovative, high quality new products and stronger cross merchandising, could go a long way towards resurrecting the department.

“The consumer’s ability to spend is still an issue that affects center store’s overall performance,” said Todd Hale, senior vice president, consumer and shopper insights for Nielsen. “But it’s also lost relevance compared to perimeter departments.”

This is underscored by figures from Nielsen Scantrack showing gains in perimeter sales far outpacing those of the center store.

For example, in the 52 weeks ended October 26, 2013, center store sales amounted to $233.3 billion, inching up an anemic 0.3 percent, while perimeter Continued on p. 54

DOOMED?

C O N TI NU E D

Continued from p. 53

While takeout meals may be a win for some retailers, the profitability of deli-prepared foods is still questionable. Hale said that while takeout may be a great way to innovate and excite customers, it also comes with a cost, including high shrink and labor costs.

“Additionally, manufacturers are incented to bring out new items every year,” he said. “Retailers love it and can make some money. But it can confuse consumers and some new products are not delivering the kind of quality we had historically. It’s hard to create a winner.”

Furthermore, there are simply too many product introductions.

sales increased 2.4 percent to $79.9 billion. Gains were driven by departments such as meat, deli and produce — offsetting lower growth in dry grocery, frozens and general merchandise.

However, center store, as well as perimeter department sales, should be put in context with demographic trends.

“Overall, household population grew less than 1 percent in 2013, which is pretty much in line with unit sales,” Hale said. “We’re not seeing the kind of growth that we’ve been used to because of declining birth rates and immigration.”

Hale says center store is dying by 1,000 cuts.

“There are a lot of things affecting the consumer’s ability to spend and it shows up in terms of overall performance,” he said.

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Looking at various center store categories in supermarkets, he noted that dry grocery and frozen are down 1 percent in units, with non-food/grocery items like detergents and paper are off 2 percent.

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“That’s a significant decline given how big those departments are and the overall profits they provide,” he noted.

Retailers have been doing great work on the perimeter with deli-prepared meals, snacks and desserts doing very well, but it’s coming at the expense of center store because many people are buying items they used to make themselves.

“A lot of research indicates that if you give consumers too many choices, they can end up not making one at all,” Hale noted.

This begs the question of who gained sales at the expense of supermarkets.

“As I said, perimeter departments are getting some of it,” Hale said. “The ‘value’ channels are also winning. Think about the growth in club and dollar stores. Walmart also continues to add stores and take share. But we’re not seeing a lot going to e-commerce.

It may be happening in categories like diapers and some baby products, but not center store food.”

He concedes that drug stores are somewhat of a factor.

“But when you look at the top selling and fastest growing categories in drug it’s mostly edibles,” he said. “Relatively speaking they are pretty small players.”

Looking at the rest of 2014, Hale doesn’t see the center store situation changing to any degree.

“We are in the midst of research on how much people might reduce spending faced with higher payroll taxes, rising gas prices and increased healthcare costs,” he said. “Most consumers tell us that increasing food costs will affect spending the most. Inflation will edge up a little. That might help retailers drive some dollar growth.“ But consumers will have to make some tough choices in terms of what they buy and don’t buy, he warns. Gas prices and home heating oil have fallen, Continued on p. 56

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but home heating costs for natural gas will increase this year. Additionally, payroll taxes are back and will have an impact in the first half of the year.

The government’s Supplemental Nutrition Assistance Program (SNAP) program which has set aside $5 billion to help low income individuals and families, could be a positive factor, according to Hale, noting Walmart’s estimate that it could capture 18 percent of that.

Many consumers are still impacted by unemployment or reduced hours, Hale said.

“Our economy has been drained by the loss of so many manufacturing jobs that have been replaced by lower paying ones — some of which are part time,” he said. “That’s not going away. Unless something is done to reverse the erosion of manufacturing jobs in this country, household income will continue to fall.”

Long-term, one of the “train wrecks” facing retailers is overreliance on the growth of certain ethnic consumers.

“Only the Asian population fares well relative to white households,” Hale said. “They are often more highly educated and have higher incomes. Household incomes for groups like Hispanics, or AfricanAmericans are generally lower. We are relying on them to fuel growth. Unless jobs and education levels change, we will continue to see some issues.”

On the other hand, Hispanics, as a group, tend to spend a larger percentage of their budget on food, a factor that can benefit supermarkets in both the perimeter and center store.

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Overall, if center store is to play a bigger role in the future, retailers must adopt a more holistic view of the store.

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“If we have people managing the perimeter differently than center store, we’re going to create conflicts instead of developing a cohesive approach to new opportunities,” said Hale.

“Someone still has to figure out how to make the center store experience different than it is today,” he adds. “I think pet food companies like Nestlé Purina, for example, have done a nice job of changing the look of the department without expanding the space, and we’ve seen some positive results.”

Sometimes it can be as simple as basic cross merchandising, like placing gravy with the potatoes to sell more of both, said Hale. Another example, albeit on the perimeter, is being explored by Coca-Cola Refreshments, which is moving beverage cases to deli sections, making it easier for customers to purchase a drink with their meal.

“We’ve got to get some subtle disruptions to get people down center store aisles,” Hale recommends.

“I was in a supermarket in Seoul a couple of years ago and noticed women in the aisles wearing P&G and Kraft shirts. They were there to educate customers about these brands. We should be looking at ways to do subtle interruptions like that to point out new products or just to get people down the aisles.”

Hale said the grocery industry could do something similar in California if it can figure out how to shift expenses.

Long-term, one of the “train wrecks” facing retailers is overreliance on the growth of certain ethnic consumers.

“But more importantly,” he said, “We need to stop chasing the competition and start chasing the consumer. Retailers, like Kroger, who mine their loyalty card data have figured out how to speak to consumers, know what they want and respond.”

This could mean rethinking the entire center store presentation.

“But we have to make some tough calls on capital expenditures and some retailers hesitate to go down that path,” Hale said. “Ultimately we must think about tweaking stores to make them unique.”

The situation is made all the more urgent by e-commerce companies like Amazon, Peapod and Fresh Direct who will continue to erode center store business. Amazon, alone, has spent nearly $14 billion on new fulfillment facilities since 2010.

And as Bloomberg news recently said: “If Amazon can place fulfillment centers nearer to the top 20 U.S. metropolitan areas, the company could reach 50 percent of the U.S. population with same-day delivery compared with 15 percent now.”

Continued on p. 58

DOOMED?

C O N TI NU E D

Continued from p. 56

“We know consumers are willing to order online and pick up at stores,” Hale said, noting that Weis markets in Pennsylvania has been very successful with nearly a dozen pick-up locations and Walmart is leveraging its business model to attempt a similar strategy. “Don’t worry so much about Amazon but what your customers want and how to build your model around that.

“It depends on who you are as a retailer. If you’re only about price you don’t have much to play with

except maintaining low prices,” he said, citing retailers like Aldi, as well as retailers like Kroger, Delhaize, Giant Eagle, and HEB, all of which are experimenting with Aldi-like formats.

Retailers with access to more affluent shoppers have more opportunities to do a lot more with center store, he said, noting that the wine and liquor department will probably become increasingly important.

Asked if private label is the answer to some of center store’s woes, Hale replied: “Successful private label retailers will be the ones that up the ante. Private label growth is flat, not what we expected. That’s because big private label categories like milk, cereal, and carbonated soft drinks are less relevant because consumers are finding other options.” 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 U.S. 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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FOCUS ON TECHNOLOGY

LE N LE W IS

FOCUS ON TECHNOLOGY

Becoming A

SHOPPING

BUDDY What if you were able to be a shopping buddy — accompanying customers as they walked the aisles, giving them prices and promotions on the spot telling them what’s safe for their children and reminding them to pick up an item they forgot they need.

This is the essence of personalizing the shopping experience thanks to the development of “augmented reality” and “micro location” technologies that connect retailers with their digital customers during the shopping trip via tablets, smartphones and, in the future, a new generation of wearable technology like Google Glass and smartwatches.

It gives consumers the opportunity to make better buying decisions while providing retailers with more information about shopper behaviors that can impact everything from merchandising and marketing specific categories to the layout of the entire store.

Continued on p. 62

FOCUS ON TECHNOLOGY

Continued from p. 61

The latest development in “micro positioning” is called iBeacons and was developed by Apple.

It is being tested in about 200 grocery locations, including Safeway and Giant Eagle stores in Seattle, San Francisco and Cleveland along with department stores like Macy’s.

The iBeacon is a round transmitter about the size of a quarter that can be placed at a store’s entrance or in different aisles — and is virtually hidden from sight.

It’s powered by low-energy Bluetooth that can target iPhone and some Android smartphones or tablet users. This makes them far more efficient and less expensive then GPS systems for retail environments, according to observers.

Customers have to opt into the system by installing an app from inMarket that picks up the signals and, literally, “wakes up” the mobile device. The big advantage to the system is that they are “hyperlocal” allowing retailers to pinpoint the location of smartphone users within a few feet, making it far more efficient in retail environments then GPS systems. inMarket has done case studies with CocaCola Refreshments and Procter & Gamble that show it’s more effective to make offerings in store than to consumers at home.

Virtual, or augmented reality, being tested by such chains as Walmart, Target, Tesco, and other department and specialty stores, has been further refined by Accenture Technology Labs in San Jose, Calif., where it has become part of Accenture Augmented Reality Shopping Demo, or “weShop.”

“We’ve worked with virtual reality (VR) in a number of business scenarios and it’s very compelling to be immersed in a 3D world. But I don’t see much adoption in retail,” said Mike Redding, managing director, Accenture Technology Labs.

“Augmented reality, where digital is overlaid or added to the real world through a phone or tablet, supplements the consumer experience,” he said. “It can help them in picking out a gluten-free product out of the 25 facing them on the shelf and make sure they don’t forget any of the ingredients for that spaghetti Bolognese they’re making for guests.”

Augmented reality, where digital is overlaid or added to the real world through a phone or tablet, supplements the consumer experience.

It’s also showing retailers how to personalize the shopping experience with nutritional and drug interaction information when a mobile device is pointed to a specific product or category and personalized pricing based on their preferences and social data.

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“weShop for grocery is all about encouraging the right kind of brand switching and reaching out across the digital landscape,” said Redding.

“Grocery shopping is a journey connected to consumer lifestyles. If they can interact with grocery everywhere from their kitchens to watching the Food Network, to adding recipes to their shopping list, it captures behavior.”

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All these things, he said, act as a funnel towards that moment of truth in the store. weShop brings all these together when they’re in the grocery aisle. weShop is being tested with a consumer electronics chain on the East Coast, but has yet to appear in grocery, said Redding. But he sees it as a solution that applies to all retail.

FC OACLUI SF OORNN ITAE CHHI S NPOALNOI G CY S

“We looked at two years of (loyalty) data from 5 million customers at a large United Kingdom grocery chain,” he said. “We found that as much as 11 percent of a customer’s typical purchases are forgotten on any given visit. This means they have to make a separate trip to buy those items. However, instead of going back to their regular store they may go to a convenience store or other outlet to pick it up.”

WeShop, Redding said, will remind people of things they need to buy so it’s a value-added service. By catching customers on the way into the store, the grocer will get the most out of the visit.

“If I’m a yogurt buyer, why not ask me while I’m in the yogurt aisle if I’ve tried a new item and offer me a special price,” Redding asked. “It can also encourage me to try the store brand, which is cheaper but offers a higher margin to the retailer.“ Take another example. A colleague’s daughter has eating restrictions and when they go shopping they have to pore over labels to make sure it’s safe.

“Imagine going down the aisle and having safe items pop up on your cell phone,” he asked. “It makes the store a lifestyle partner with consumers and creates trust in the retailer.”

Retailers win when the customer gets exactly what they want, Redding said.

“Once they are in the aisle, there’s a big opportunity for brand switching, upselling and maximizing store margins,” he said. “Everything is possible when customers have a digital assistant in their hands.

So why would they go to another store where that doesn’t exist.”

If I’m a yogurt buyer, why not ask me while I’m in the yogurt aisle if I’ve tried a new item and offer me a special price?

“But,” he said, “the mass adoption of smartphones and low energy Bluetooth technology can rewrite the rules overnight.” 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 U.S. 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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“A few years ago retailers started experimenting with devices they provided to customers, or shopping

Redding conceded that grocers can be reluctant to get involved because past experiments with digital have been cost prohibitive.

C A L I F OR N I A G R OC E R

Another major advantage with weShop is the minimal implementation time and cost for retailers.

Huge capital projects are a big challenge for retailers.

They have to drive incremental revenues and be cheap to implement.

cart computers,” he said. “It was a capital killer. Now every consumer is walking around with their own devices in their pocket and retailers only have to trigger an app to start a conversation. It’s not a big capital play.”

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ADVE RTIS E R INDE X

PAGE COMPANY

PHONE

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BC

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C&S Wholesale Grocers, Inc.

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IBC California Shopping Cart Retrieval Corp.

818-563-3070 800-252-4613

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Coca-Cola Refreshments

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Gelson’s Markets

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Gourmet Demonstration Services

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Kraft Foods Global, Inc.

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55 Nestle Purina PetCare

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314-982-2860

paul.cooke@nestle.purina.com

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IFC

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Procter & Gamble

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Safeway Inc.

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Unified Grocers, Inc.

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ONE OF MY HEROES AS A KID WAS MICKEY MANTLE. HE WAS ABLE TO PERFORM BRILLIANTLY EVEN THOUGH HE DIDN’T FOLLOW ALL THE MODERN ERA PRACTICES OF GOOD HEALTH AND DIET. By now you have probably abandoned a good percentage of the resolutions you made in January.

That’s okay … you’re human! The best of practices are long term and come about with incremental changes to our daily routines.

Commitments to business, family and personal goals are achieved with the help of others, persistence and an adherence to a standard of excellence.

Mantle once said, “Keep your eye on the ball,” the other half of Mickey’s quote is “and your brain in gear.”

Promises you made for 2014 needn’t be abandoned merely because things aren’t going as you envisioned them. Minor adjustments, due to temporary setbacks, are often called for. Professional sports like the NBA, NFL and other franchises make adjustments on an annual, seasonal and last minute basis.

“Get your facts first. Then you can distort them as you please.”

“People who think they know everything are a great annoyance to those of us who do.”

- Isaac Asimov Our industry is rapidly changing and growing.

Competition from every angle can cause us to lose sight of the results we are trying to fashion.

Look to the California Grocers Association, its staff and affiliates for the insights and support you may need. Make this the year your business, family and personal goals are put on smooth sailing!

“If fear is cultivated it will become stronger. If faith is cultivated it will become mastery!”

- John Paul Jones

WEA LT H M A N AGEMENT

Keep Your Eye ON The Ball

Here is to a few “home runs” for you and your loved ones! n John B. Kelly, CFP is a nationally recognized speaker, consultant and investment advisor assisting families and businesses with succession/transition planning and retirement goals. He can be reached at 916-296-9019 or investorscaddie@gmail.com. www.linkedin.com/in/theinvestorscaddie.

- Mark Twain Commitments to business, family and personal goals are achieved with the help of others, persistence and an adherence to a standard of excellence. I encourage each of us to excel in 2014 given the steady growth we have seen in the economy, markets and international development.

- Henny Youngman

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Yes, there will always be challenges such as unemployment, regulatory burdens, world conflicts and “a flat recovery.” Excellence is achieved by those who put those concerns behind them and strive for the clear-cut, clearly-communicated outcomes.

C A L I F OR N I A G R OC E R

“As a kid, there were two food choices … take it or leave it!.”

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