Published on: June 15, 2006
Next week, CIES – The Food Business Forum will convene its World Food Business Summit in Paris, an annual event that moves among the great cities of the world (Budapest, Rome, Stockholm, Barcelona and Dublin have been among the outstanding venues of the last few years) and offers provocative presentations both by industry leaders and outsiders with a unique perspective on business and its role in culture and society.
This year’s conference, using the theme “Flying High In The Face Of Competition,” is taking place at the Carrousel du Louvre, promises to live up to past editions, with an intriguing list of speakers that includes the CEOs of such companies as Ahold, Food Lion, Carrefour, Procter & Gamble, L'Oréal Group, Kraft and Unilever…not to mention the vice chairman of Wal-Mart.
As usual, MNB
will be on location in Paris at CIES next week, offering exclusive reports and commentary on what is said and what it means. To get a preview of what we might hear next week, and an informed assessment of the global retailing business environment, we engaged in this exclusive e-interview with Alan McClay, CEO of CIES..MNB: From your vantage point as CEO of an international food industry organization, do you think the world is a more fractious place in which to do business than it was, say, five years ago? Or is it a place where, despite governmental disagreements, doing business on a global scale is actually easier. And why?Alan McClay:
The global economy has been growing strongly, despite the serious conflicts that exist in today's world. Over the past five years, China, India and Russia have continued to emerge as economic powers, while the EU has expanded to include much of Central and Eastern Europe.
Obviously, this economic growth is good news for retail and consumer goods, since it opens up new markets and raises consumer spending. This change has been most dramatic in Asia: according to ACNielsen estimates, the share of modern retail formats in dry-grocery sales increased from a third in 1999 to half last year. For individual companies, this global growth has had a huge impact: among retailers, Carrefour and Metro now generate over half of their sales abroad, while among leading manufacturers, P&G is shifting heavily towards emerging countries, and French group Danone last year generated nearly 40% of its sales outside Europe in 2005.
Companies deserve credit for their global growth: it is never easy to enter a new country and the growth of L'Oréal in China or Tesco in Korea have been built on careful research and local partnerships, as well as global scale of course. At the same time, the learning curve has been quite steep, and after a ‘gold rush’ in Asia and Eastern Europe in the 1990s, we have seen quite a lot of companies pull out of certain markets. But on balance international expansion makes sense for retail companies that are operating in mature markets, and will bring increasing knowledge and financial returns over time.
Looking more widely at global risks, there are grave challenges to this positive picture of global growth. Energy is both a long-term problem and a short-term pressure, especially for retail companies that are highly sensitive to supply chain costs and shifts in consumer spending. Another major concern is avian influenza. While too little is known about the current outbreak, it seems clear that growth in population, consumption and trade have created new risks in the food chain, especially in Asia. A related problem is the threat to the environment, which is under strain from the rapid global growth I described. But the issue that is demanding the most attention from our sector is nutrition, as society tries to work out solutions to record levels of obesity.MNB: Here in the US, the issue of business ethics and values has gained enormous currency because of the travails of companies like Enron. Are you seeing the same sort of attention paid to the issue on the global stage, and how do you see companies adjusting to changing consumer demands in this area?Alan McClay:
The issues I mentioned above have contributed to pressure on companies around the world to be good corporate citizens. Issues like Enron have put the business world on the defensive. There is room for the whole private sector to be much more pro-active rather than reactive.
Many retailers and manufacturers have taken constructive positions on all areas like energy efficiency, product choice and labeling, or sustainable farming:
• CIES members Wal-Mart and Tesco, favourite targets for corporate critics in the US and the UK, have committed themselves to major community and environment programmes. These initiatives will have a positive impact in the future.
• Leading manufacturers like Nestle have joined together in the Sustainable Agriculture Initiative that provides training for farmers in developing countries.
• Regarding nutrition, US drink manufacturers have agreed to withdraw high-sugar sodas from schools in a voluntary agreement, while food makers have developed 100-calorie packs (e.g. Kraft's mini-packs of Oreos).
I quote these examples because they are the most visible tip of the iceberg, but there are many others.
Given the global nature of these issues, the CIES role is to support and facilitate coordinated action when it is appropriate. CIES began first in food safety through the Global Food Safety Initiative (GFSI). In recent months, our members have also been working hard behind the scenes on a similar issue, which we will present to our Board of Directors next week.
So in fact there is a straight line from Enron to sustainability.MNB: Every year CIES organises a Future Leaders Conference. We’re curious - when you look at and speak to the people who will be leading the industry in the next few years, what are the traits and characteristics that stand out that you think could change the way the business operates?Alan McClay:
Let me give you five concrete examples of things which may change when Future Leaders become senior management:
• They have the capacity for positive detachment, i.e. "smart thinking" in their view is considering what they want from their professional environment and what they get from it or don't get from it and why. The company is certainly not just a job, but it is not a religion either. This detachment may in turn have a positive impact on the individual's capacity to integrate ethics, values and social standards into the way they think about the business.
• They do not see all of the bigger management issues that impact the company, but their intense operational focus means that they have a potentially deeper understanding and hands-on experience of the importance of being closer to customers.
• The use of technology provides flexibility and choice in their lives, and many are early adopters. They are therefore more in tune with the impact technology will have on their customers’ lives and purchasing habits.
• They can think broadly and innovatively about the capacity and value of developing new strategic partnerships outside of the immediate business (‘share of wallet’ mentality).
• They embrace globalisation.MNB: Food safety clearly remains an enormous issue on a global scale, with mad cow disease, avian flu and other, similar concerns always seemingly in the headlines. What's your sense of how industries and governments are coping - what are the obstacles and the opportunities that exist at the moment?Alan McClay:
Public authorities around the world are following very closely what food companies are doing in terms of managing the risks. CIES is working closely with its members to ensure that both parties have a shared and common understanding. We are therefore in contact with the authorities of the European Union for example to share our knowledge and to cooperate with them. The largest obstacle at this point in time is in my opinion the lack of common understanding and vision. CIES has created a retailer food safety platform that is only a starting point, not a final goal.
But as Chris Anstey from Tesco said at the CIES Food Safety conference in Paris earlier this year, "Six years ago retailers did not collaborate on non competitive issues like food safety and now they do." This collaborative approach is essential in today's world of open borders and is our biggest opportunity to ensure safe food for our consumers.
Clearly a priority is to share best practises and know-how with brand manufacturers, and GFSI is actively building a dialogue between retail and manufacturing. Beyond that there are many stakeholders in this aspect of the value chain, and bringing them all together, which is what the GFSI does at the annual CIES Food Safety conference, is the first opportunity.MNB: This year's CIES Summit in Paris features as speakers a list of CEOs from some of the world's biggest and best retailers and manufacturers. Why was having a lineup of those kinds of speakers appropriate for 2006?Alan McClay:
The Summit is THE event for the leaders of the global food business. The event is for CEOs, by CEOs. This positioning is extremely important for the Summit and it was important to underline it in bright letters for our 50th. But having top level CEOs is nothing new for the Summit and we plan to continue with this top level participation as you will see from the speakers already confirmed for the Shanghai event in 2007. Our equally golden lineup currently includes Hans Joachim Körber (Metro), José Luis Duran (Carrefour), Roger Corbett (Woolworths) Sir Martin Sorrell (WPP Group), Mike White (Pepsico), Maudrice Levy (Publicis) and will of course include some of the very major Asian players in the modern retailing arena.MNB: Finally, when we all leave the CIES Summit, what is the central message you'd like us all to take with us? Alan McClay:
• That the most relevant and even the most difficult issues were put on the table and moved forward through pragmatic and tough debate.
• Despite a particularly difficult time for our industry characterised by many casualties, much creativity, innovation and new thinking has emerged in the process as witnessed at the Paris Summit. We hope the programme will have reflected the optimism that emerges through the passage of difficult times.
• That our 50th was a great celebration! A celebration of and by our industry, thanks to the heritage that our members have left us in building the Summit over 50 years, thanks to the top level speakers who shared their thought leadership, thanks to our Summit sponsors without whom we could not count on such a great experience.
• That CIES as an organisation is "Flying very high in the face of competition".
• That they absolutely must attend the 2007 Shanghai Summit - that CIES will provide them with an unparalleled and relevant "China experience" necessary for all players in modern retail regardless of whether they do business in China or not.