WASHINGTON -- The food industry is poised for a turnaround after a tough couple of years, Tim Hammonds, president and chief executive officer, Food Marketing Institute here, told SN.
Hammonds was interviewed just prior to the FMI Show at McCormick Place in Chicago, May 2 to 4.
However, Hammonds warned that such an upswing is only possible barring any unforeseen events that could again derail commerce. He said the threat of terrorism to the food supply is serious and real.
"It is clear as the intelligence community continues to analyze documents they capture that al Qaeda has thought seriously about targeting the food supply."
Hammonds said the industry's response to this threat is ongoing and will require it to be alert and prepared for years to come.
The industry is working with Secretary Tom Ridge's U.S. Department of Homeland Security and other government agencies, primarily the Food and Drug Administration and the U.S. Department of Agriculture, in sharing information and analysis through a center FMI established in 2002. The center acts as a liaison between the industry -- from farm to table -- and government agencies, including the intelligence community, said Hammonds.
Another mad cow discovery also could cause a major setback for the industry, he said. However, he pointed out that another case would not be too surprising as animals that might have been infected with bovine spongiform encephalopathy prior to the feed ban that went into effect in the United States in 1997 will be coming to market in the next 12 to 18 months. "We have to be prepared for that," Hammonds said.
In the wake of the mad cow discovery late last year, the USDA and the FDA incorporated recommendations from FMI in new safeguards to protect the meat supply. The recommendations included that all "downer" cows (animals unable to walk on their own) be tested, and that the carcasses be held until test results came back and the meat not be allowed into the food supply. "Since animals are being held for testing, we can confidently say to the public that if we find another case, the meat would not have moved into the supply chain at all," said Hammonds.
Despite these concerns, Hammonds said he believes the industry's mood is more optimistic than it has been in the past several years, during which the industry has navigated an unstable business environment and increasing pressure from competing formats.
To support the upbeat mood, Hammonds cited record sales in recent quarters at several member companies; the strike settlement in Southern California; the $2.5 billion proposed acquisition of Shaw's and Star Markets by Albertsons, announced this month; an uptick in attendance at FMI's Marketechnics Show earlier this year; and an increase in preregistration levels for the upcoming FMI Show.
While there is no let-up from the competition, Hammonds believes the industry is much better focused on how to survive. "I think the industry is getting a better feel for how to survive and grow again. I see it as a continued rebounding year for us."
Wins the Industry Can Cheer About
Within the last year, FMI has won important legislation that favors the industry, Hammonds said. He cited passage of President Bush's economic-stimulus package as boosting spending and reducing individual tax rates.
"It was very important for the industry from the smallest companies through the largest," he said. "It was important for independent operators because it reduced individual tax rates, and almost all file business taxes on individual-tax-rate schedules. It also accelerated expensing for equipment purchases and made it easier for people to buy technology and equipment. For the larger publicly traded companies, it reduced the tax rate on dividends."
FMI also was successful in helping get the country-of-origin labeling law delayed until 2006. "This was a huge undertaking for industry from farm to retail," said Hammonds. "It gives us time to work with associations representing the producer groups and we hope to substitute a voluntary program to give consumers [country-of-origin] information without the huge bureaucracy, fines and audits and recordkeeping expenses that the current version of the law would have required."
Hammonds said that a farm-to-table coalition is crafting a voluntary substitution for the mandatory law. He hoped a proposal would be introduced in the House of Representatives this summer.
FMI also worked hard last year on the passage of the president's Medicare reform law. According to Hammonds, the law "helps preserve the ability of supermarket pharmacies to continue to compete with pharmacy benefit management companies. It made significant progress in preserving community pharmacies as a viable option. It also allowed the supermarket community pharmacies to fill 90-day prescriptions. This put supermarket pharmacies on a more level playing field with mail order and it prohibits the PBMs from forcing an unacceptable level of risk on retail pharmacies as a condition for joining networks."
In the Visa/Mastercard lawsuit, FMI (as a plaintiff in the case) spent days giving depositions on the issue, said Hammonds. "It ultimately helped both sides decide to move to a settlement. It will be important going forward and will allow more flexibility on the payment options that our supermarket members can chose to accept."
He called the settlement "a work in progress," however, as the credit-card companies adjust their rates within the confines of the settlement and retailers react to it. "We are still developing an industrywide strategy on how to deal with this," he said. "It does introduce a more flexible and competitive framework in which we can operate."
While FMI tallied its victories, it did suffer two disappointments -- failing to get the so-called death tax repealed and failing to prevent country-of-origin labeling requirements on fish.
The death tax, or estate tax, remains a thorny issue, especially for independents. Permanent repeal of the tax would help small, family-run companies to keep their business within the family, said Hammonds.
However, permanent repeal of this tax is not likely in an election year, he said. "This would be a second-term priority for the Bush administration. If the president wins in November, we will keep our energies focused, and when the time to move it is right, we'll push hard. But the timing hasn't been right yet."
While the bill containing country-of-origin labeling was delayed, Sen. Ted Stevens, R-Alaska, was able to insert a provision that would require mandatory country-of-origin labeling on fish beginning in the fall. Hammonds said FMI is working with the fisheries to include fish country-of-origin labeling in a substitute voluntary program or at least get mandatory labeling of fish delayed.
Hammonds gave the food industry good grades in several important areas.
On the technology front, he said, "the first real application of the [radio frequency identification] technology in the marketplace has been a major event for the industry."
FMI will spotlight RFID technology at its first electronic product code showcase during the FMI Show.
"Everyone is very focused on what RFID means and how to cope with it," he said. "Will it be cases and pallets for some time to come, or is it in the near future going to move through item level? There are lots of questions to be answered here, but a great deal of interest to use it to further streamline our distribution system."
He said the Uniform Code Council's joining EAN International offers a lot of promise for moving ahead on global data synchronization. "We are still hopeful the individual exchanges out there -- Transora, WorldWide Retail Exchange and GlobalNetXchange -- would merge or work more closely with one another," he said.
As far as FMI membership implementing these new technologies, Hammonds said it has been slower than expected, but members continue to make progress.
While obesity in America has become a national crisis, Hammonds said the industry has been quick to react by rolling out high-protein, low-carb foods, and manufacturers are trying to eliminate trans fats from products.
"I'd give the industry an excellent grade on this one," said Hammonds. "At the retail level as we go through the category-management process we are featuring diet-friendly products, recipes and in-store demos that help consumers find out about these products and learn to cook with them. I see retailers' responsibility as providing information and access to these new products." FMI will highlight these new eating trends at its first Healthy Living Pavilion (see related story on Page 62).
As far as demand for low-carb foods, Hammonds views it as having staying power. "It has certainly been a big event for the industry," he said. "These low-carb products are continuing to change sales in very important categories. People from the processing level all the way through to retail are changing what they do to respond to this. It doesn't appear this is a sudden fad that is going to fade away quickly. It appears it does have staying power, and everyone is learning how to cope with that."
Hammonds outlined additional challenges the industry faces in the coming year.
He believes the industry needs to refocus on its top-line growth. "We've spent three-plus years focused on cost controls, downsizing and doing all the things needed to survive. I think it is time, and the industry mood is right, for us as retailers and suppliers to talk to each other to learn how to focus on top-line growth again. Let's get back to the kind of things that excite consumers and expand sales. It is not all about efficiency and cost cutting, but there are exciting new products and lots of opportunity out there."
FMI members continue to experience an erosion of center-store sales to alternative formats, Hammonds pointed out. He believes that part of the store needs to be revitalized. "As an industry, we can't afford to let that continue. As a group, we need to focus on what it is that makes center store exciting and a destination for shoppers again."
He also called for a road map in the technology revolution. "We need to complete RFID and data synchronization. We need to know where this is going for the industry, and what it will mean for suppliers, distribution centers and stores."
New At The FMI Show
WASHINGTON -- The FMI Show at McCormick Place, Chicago, May 2 to 4, will be bigger and more diverse as the Food Marketing Institute here continues to take on new partners in an effort to add value to its exhibition experience.
The United Fruit and Vegetable Association and the Organic Trade Association are FMI's new show partners this year. All together, there will be five separate exhibits co-locating with the show. They are the United Produce Expo & Conference, sponsored by UFFVA; All Things Organic, sponsored by the OTA; the U.S. Food Export Showcase, presented by the National Association of State Departments of Agriculture, which is now in its 12th year at FMI; the Fancy Food Show, presented by the National Association for the Specialty Food Trade, now in its third year at FMI; and FMI's Supermarket Pharmacy Conference.
Brian Tully, FMI's senior vice president, convention services, told SN the two new partners bring additional growth and value to the annual FMI event by adding two fast-growing categories -- produce and organics. "We couldn't grow these categories on our own without these associations joining us," he said. "It's a big addition to our show and adds lot more sourcing opportunities and work for our attendees."
The addition of five partners expands FMI's exhibition space to over 1.5 million square feet and adds more than 700 new companies, Tully said.
The fancy food and produce exhibitors will split space in the North Hall. The organic food exhibitors will be located downstairs in the North Hall and accessible by an escalator in the back of the hall and from the mezzanine level.
FMI's Pharmacy Business Conference will hold its events in the Vista Ballroom in southeast corner of the convention complex on the fourth level.
New showcases on the exhibit floor are the Healthy Living Pavilion, which will spotlight the nation's campaign against obesity, and the EPC demonstration area, which will feature current radio frequency identification technology as it relates to distribution and warehousing. A new products showcase will be moved to a more prominent location on the show floor this year, said Tully. "This showcase will give attendees a chance to see where new products are, and then go find them from exhibiting suppliers."
FMI will continue with two close-up theaters of educational sessions on the show floor. All this is designed to bring more excitement to the show floor, said Tully.
Although no specific registration figures were given, preregistration is up, said Tully, who expects an increase in international attendees. "We think that adding different segments to the overall show will bring a great turnout from our membership," he said. The show floor is open to all attendees from the various associations. However, those wanting to attend educational events sponsored by the various organizations will have to buy tickets for those events, noted Tully.
This will be the fourth year that FMI will honor store managers. Four store managers out of 20 finalists will be presented with an award during FMI's banquet on May 3.
It is hoped that this year's show theme, Solutions for Growth, will help FMI members find answers to growing their business in a very tough business environment, said Tully. "Many companies are looking at ways to cut expenses in order to grow. But that has its limitations. We are at a turning point where everything we are doing with the show is with an idea and eye on solutions that our members need to grow their businesses."