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    Published on: June 17, 2004

    Notes and commentary from the 2004 CIES World Food Business Summit

    ROME – It isn’t many industry conventions at which one can hear speakers quote from treatises written in 1759, much less make reference to the enduring value of great art.

    Nevertheless, those were just two of the points made during the opening sessions of the annual CIES World Food Business Summit here, an event attended by more than 900 delegates from 42 countries, and bookended by loud protests and synchronized swimmers. It was an afternoon that highlighted the notion of value and values in their various forms, starting with discussions of supermarkets’ role in society at large.

    Mike Moore, the former director general of the World Trade Organization (WTO) and a former prime minister of New Zealand, made an impassioned plea for retailers to engage in transparent and ethical behavior, noting that “you have to get ahead of the wave or you’ll be punished.” In the modern world, Moore suggested, the establishment and communication of values can be a value-added proposition for a consumer base particularly attuned to such notions.

    It was Moore who talked about how Adam Smith, who wrote “The Wealth of Nations” as a guidebook to capitalism and economic prosperity, also wrote in 1759 a book entitled “The Theory of Moral Sentiment,” in which he attempted to create a case for ethical behavior in a political and cultural context, arguing even then that capitalism and morality are not diametrically opposed.

    “It is good that companies have to explain themselves to their shareholders,” he said. “If anything, business should get ahead of the curve.” Such a stance, he noted, is required because the realities of modern communications mean that utter transparency and appropriate behavior are absolutely necessary. “Big Brother is not watching us,” he said. “Rather, consumers are watching Big Brother. This cannot be stopped. It should not be stopped. The question is, how do we manage it?”

    Moore also made an excellent point for encouraging the active participation of employees in helping companies think and act in an ethical fashion. “No one ever cleaned a rental car,” he said. It is only when people actually have some ownership of the car – or the business – that they will behave in a way that keeps it in good running order. (This seems to stand in sharp comparison to certain US retailers who seem to believe that their employees are the problem rather than the solution to corporate ills.)

    It was ironic that as Moore was speaking to issues of values and ethical behavior, the air was thick with loud, recorded protests from a Greenpeace truck that was sparked just outside the conference center. The protests, broadcast in several languages, seemed to be trying to get the assembled CEOs to address issues of bio-technology and animal rights, and to give consumers a choice. Retailers, of course, usually do offer consumers just such a choice – but they’re not taking sides in the bio-tech issue. (Which is what really annoys Greenpeace, an organization that seems more dedicated to restricting choice than promoting it.)

    Perhaps coincidentally, Moore – who said he was a member of Greenpeace – said that business would be foolish to ignore the possibilities that science has to offer. “Science and culture are advancing faster than our political ability to cope,” he said. “But if we don’t embrace science, we revert to the age of witchcraft.”

    A promised panel discussion on the subject of sustainable business practices - moderated by the estimable food industry writer Denise Larking-Coste – was marred by the fact that most of the participants seemed armed with position papers rather than prepared to engage in thoughtful conversation. It was hardly a surprise, for example, that Wal-Mart International CEO John Menzer said that his company’s primary goal was to “raise the standard of living and quality of life on a worldwide basis,” and that Wal-Mart is highly focused on “fair and ethical treatment” of both suppliers and associates; Wal-Mart’s position seems to be that whatever allows it to cut prices for consumers is good, and that whatever prevents it from doing so is bad.

    It wasn’t hugely surprising that Ahold CEO Anders Moberg said that his main job these days is to make sure that Ahold’s various chains are “individually sustainable,” though folks at Giant of Maryland who are losing their jobs because of consolidation with Stop & Shop might raise an eyebrow or two at that one.

    Nevertheless, there were points in the discussion worth making. Larking-Coste referred back to last year’s Summit closing speech by Bob Geldof, in which he outlined the five requirements for the food business to achieve sustainable success:

    1. Is your business responsive to consumers?
    2. Is your business dominant?
    3. Are your brands bullies?
    4. Do you as a sector grab too much of taxpayers’ subsidies?
    5. Do you as a sector enjoy an unfair share of the world’s water supplies?

    And two retailers on the panel – both CEOs of cooperatives – suggested the level to which retailers need to be responsive.

    Vincenzo Tassinari, chairman of Coop Italia, told the audience that his organization has made as a priority to collaborate with suppliers on issues of food safety, environmental care, and human rights – and to make adherence to proper ethical behavior a cornerstone of operations and relationships. “This is not done for marketing advantage,” he said, but to create in fundamental ways a foundation upon which the business can survive long-term. (Coop Italia already has a pretty good track record for survival – it is celebrating its 150th birthday this year. But still, forward momentum cannot and should not be slowed.)

    And Claude Hauser, chairman of Migros in Switzerland, told how his organization has established a code of conduct for itself and suppliers, and is aggressively communicating the values it associates with organic and private label brands to consumers.

    Where did Van Gogh come in?

    Well, in the final session of the day, Britain’s Lord Hindlip – known as Charles Henry Allsopp before his elevation – spoke of his near five decades as an auctioneer at Christie’s, a subject that might seem to have little to do with the sales and marketing of groceries.

    But Lord Hindlip, while acknowledging that to many of us the price of fine art such as an original Van Gogh or Picasso seems completely beyond reality, noted that in comparative terms over the past fifty years, the price of a haircut, a pair of shoes, real estate in a major city, or a decent restaurant meal in London has gone up far more.

    It was an interesting point. Value, when you think about it, is essentially arbitrary. It is decided upon by consumers, who evaluate and deliberate and finally act – or don’t act – upon their reaction to a thing of art or beauty or commerce. And one’s values often can be defined by the things to which we assign value.

    That’s a concept worth thinking about. Often retailers make decisions about what they seen as having value, and assume that the consumer will go along and see it their way. That may not always be the best idea.

    As Warren Buffett once said, “Price is what you pay. Value is what you get.” Retailers determine price, but it is consumers who ultimately define value.

    And about those synchronized swimmers? They were members of the Italian Olympic team, who entertained the audience during the evening cocktail party, sponsored by Coca-Cola.

    Something for everyone here at CIES 2004…and we’ll have more for you tomorrow on the subjects of food politics and obesity, both of which are scheduled to be discussed today.

  • In other news, CIES announced the election of Claude Hauser, Chairman of the Board of Directors, Federation of Migros Cooperatives, Switzerland, as its new chairman. He will hold the position for the next two years. He succeeds Delhaize’s Pierre-Olivier Beckers, who is completing his term of office.

    In addition, four new board members were named by CIES:
    - Kenneth Bengtsson, President and CEO, ICA AB, Sweden,
    - Steven Esom, Managing Director, Waitrose, United Kingdom
    - Bill McEwan, President and CEO, Sobeys Inc., Canada
    - Sean Summers, CEO, Pick’n Pay Retailers, South Africa.
  • KC's View:

    Published on: June 17, 2004

    California' Attorney General Bill Lockyer has filed a lawsuit against Safeway there, accusing it of having a terrible record on selling tobacco to underage children. "This lawsuit sends a strong message that retailers must take responsibility for keeping tobacco away from children or face serious consequences," Lockyer said.

    The suit seeks legal penalties that could run in the hundreds of thousands of dollars.

    Safeway said in a statement that, "We believe our record of compliance regarding tobacco sales does not justify being singled out in this instance. We invest a great deal of time and resources to ensure our employees are well trained.”
    KC's View:
    While if Safeway is guilty of these infractions it ought to pay the price, it has to be noted in all fairness that Lockyer could well have a political motive. The labor unions are major supporters of his political career, and he has been highly critical of Safeway’s approach to labor negotiations.

    So let’s just keep some perspective here. Things often are not what they seem.

    Published on: June 17, 2004

    • Albertsons Inc. reportedly will engage in management restructuring that will affect its Idaho, Utah and Montana operations, eliminating 50 jobs across the three states. Currently, Albertsons has 11,300 employees working in 120 stores in Idaho, Utah and Montana

    • Unionized employees at 86 Kroger stores in Michigan have approved a new contract covering 8,600 employees. The deal reportedly maintains current health insurance coverage and raises top wage rates.

    • The Detroit News reports that “a small group of Target employees is working with the United Food and Commercial Workers International Union in an effort to organize workers at several stores in Metro Detroit.”

      Target has responded to specific accusations by saying that it has not cut hours and reduced benefits across the board, nor does it favor part-timers over full-time employees.
    • . She also said the retailer does not favor part-time employees over full-time workers.

    • Gasoline continues to be a weapon in the retailing wars in the UK, as Wal-Mart-owned Asda Group announced that it is cutting petrol prices yet again, attributing the cuts to falling oil prices on the world market.

      Sainsbury already has responded to the announcement, saying that it will be undercutting the Asda price. And it seems likely that Tesco will be heard from on the same subject momentarily.

    • C&S Wholesale Grocers has relocated its corporate headquarters to Keene, N.H., from Brattleboro, Vt., while leaving its warehouse and sales office in the former location.

    • Marks & Spencer has officially rejected the latest acquisition bid by retailing entrepreneur Philip Green, which would have valued the company at the equivalent of $15.4 billion (US). Marks & Spencer management said that the bid “significantly undervalued” the company and its prospects.

    KC's View:

    Published on: June 17, 2004

    • The Associated Press reports that an anti-Wal-Mart billboard that was leased by a community association in Bridgeport, Washington, has been taken down by the billboard’s owner, Clear Channel Outdoor.

      The reason? The billboard is located on property owned by Wal-Mart, on which the retailer plans to build a 150,000 sq. ft. supercenter.

      The sign read: “Don't Wal-Mart Bridgeport. Not here!" It was only up for three days before being taken down.

    • The Nation reports that Wal-Mart is distributing a handbook to its managers stressing how important it is that the company fight unionization at every turn. In part, the handbook reportedly says:

      Staying union free is a full-time commitment. Unless union prevention is a goal equal to other objectives within an organization, the goal will usually not be attained. The commitment to stay union free must exist at all levels of management -- from the Chairperson of the "Board" down to the front-line manager. Therefore, no one in management is immune to carrying his or her "own weight" in the union prevention effort. The entire management staff should fully comprehend and appreciate exactly what is expected of their individual efforts to meet the union free objective.... Unless each member of management is willing to spend the necessary time, effort, energy, and money, it will not be accomplished. The time involved is...365 days per year....

    KC's View:

    Published on: June 17, 2004

    Canada’s CBC reports that even as The Ranchers-Cattlemen Action Legal Fund fights to keep the border closed between the US and Canada to Canadian cattle, some members of the group are buying up livestock north of the border in anticipation that the border eventually will be opened.

    Because the border is closed because of a case of mad cow disease found there, livestock is selling cheap in Canada.

    The United States and 33 other countries closed their borders to Canadian beef in May 2003. The United States began accepting some cuts of beef last August, but won't allow shipments of live cattle. The US department of Agriculture (USDA), however, is reviewing this policy.
    KC's View:

    Published on: June 17, 2004

    Interesting interview in the New York Times with Garrett Oliver, brewmaster of the Brooklyn Brewery, who says that "beer and wine are both beverages meant to be served with food. And good beer, real beer, often offers things that most wine does not, like carbonation and caramelized and roasted flavors — aspects that sometimes make beer the preferable choice.

    "And the most wonderful thing about beer is that it has that ability to `reset' your palate. Take cassoulet, for example: Rustic southern French reds are good, but French beer is a much better choice. Cassoulet can be like cement, but beer busts it up and makes it seem so much lighter."

    The broader point – which is worth making for those of us who don’t consume cassoulet on a regular basis – is that the relationship between beer and food has largely been ignored as wine has become more celebrated for its intricacies. Retailers that invest much in their wine departments, offering tastings and a high level of education and expertise, often revert to form in their beer departments, focusing more on stacking it high and deep and selling it cheap.
    KC's View:
    The point that Oliver misses is that the gourmet beer train already has left the station and, to some extent, been derailed. Gone are many of the brewpubs around the country that were all the rage several years ago, dismissed as a fad as opposed to a serious trend. In many cases, we suspect, that’s because they were less focused on the quality of the beer and food than they should been.

    Still, the general observation is a legitimate one. By reducing a category that can be celebrated for its intricacies to one that is focused on price and simplicity is to miss an opportunity to get consumers to learn, to trade up, to buy more and better product. Which probably is a mistake.

    Published on: June 17, 2004

    There was an interview with Apple CEO Steve Jobs in the Wall Street Journal the other day in which he discussed a wide range of subjects, but there were a couple of comments that he made that we thought were worth repeating. While not related to the food business, they were illustrative of a kind of business common sense, and therefore relevant.

    In one case, Jobs was talking about the huge success of the iPod, and was asked if there were other new product categories – other than computers – that he’d be interested in getting the company into.

    And he responded:

    We look at a lot of things but I'm as proud of the products that we have not done as I am of the ones we have done.

    Then, he was asked, “What's your favorite thing you've not done?”

    And he answered:

    A PDA. We got enormous pressure to do a PDA and we looked at it and we said, "Wait a minute, 90% of the people that use these things just want to get information out of them, they don't necessarily want to put information into them on a regular basis and cellphones are going to do that." So getting into the PDA market means getting into the cellphone market. And you know, we're not so good at selling to the enterprise where you've got, in the Fortune 500, five hundred orifices called CIOs. In the cellphone market you've got five. And so we figured we're not going to be very good at that.

    The message: don’t be lured into competitive battles that you can’t win and in which other companies have far greater expertise. Do what you do best, and do it better than everyone else.

    Then, when discussing the digital media revolution, Jobs made this fascinating observation about the movie business:

    Let's look at how many ways are there to watch movies. I can go to the theater and pay my 10 bucks. I can buy my DVD for 20 bucks. I can get Netflix to rent my DVD to me for a buck or two and deliver it to my doorstep. I can go to Blockbuster and rent my DVD. I can watch my DVD on pay-per-view. I can wait a little longer and watch it on cable. I can wait a little longer and watch it on free TV. I can maybe watch it on an airplane. There are a lot of ways to watch movies, some for as cheap as a buck or two.

    The message, it seems to us, is that as the world changes there are going to be more and more ways in which consumers are going to be able to access the products and services that they want…whether it be technology, entertainment, or foods and beverages.

    And extended to the retailing business, it seems to us that the implication is that to succeed, retailers need to create environments that delight and entice and inform the shopper – not by sacrificing price, but by emphasizing value in its various forms.
    KC's View:

    Published on: June 17, 2004

    …will return.
    KC's View: