REALISM AND TRANSITION

DAVID ORGEL

ROCHESTER, N.Y. -- Danny Wegman sees a lot of possible solutions to the many hurdles facing the food industry.

Just not too many easy answers.

The incoming chairman of the Food Marketing Institute brings to his new role a realistic outlook on retailing shaped in his position as president of Wegmans Food Markets here. In an interview with SN, Wegman said he will strive to help ease the industry's transition into an age of consolidation; new kinds of competition, including electronic commerce; and heightened food-safety concerns. But he believes the various players in the food industry will need to work together more closely than before to deal with these complicated issues. "I don't know if there's a cooperative spirit in the industry at the moment," he said. "But there is a survival spirit."

That spirit should extend to the industry's relations with others, including the government, particularly on all-important issues like fighting food pathogens, Wegman said. "I don't know if the government really trusts us as an industry," he conceded. "But we have to find new ways of working together, because the adversary is pretty formidable."

Closer retailer-supplier links must also be forged for an issue like food safety, he said. "As retailers we can't do this alone. We have to work upstream, for example in the meat area with the entire meat supply. This is a little different for us. We've had relationships with them before, but I don't know if we've understood how integrally related we were."

The FMI's 13th chairman, who will take the industry into the next millennium, also sees room for evolution in other areas, such as new merchandising trends. He points to the emerging Whole-Health effort as a strong example of capitalizing on opportunities, and notes that meal merchandising will continue to be rethought by operators.

Wegman also puts a premium on solving industry human-resources problems, including building closer relationships with Generation X employees.

Wegman succeeds Supervalu's Mike Wright in the FMI's top elected role, which he will retain for two years. (See Page 60 for an interview with Mike Wright about his chairmanship tenure.)

FIGHTING FOR FOOD SAFETY

Probably no issue is more important to Wegman than food safety. He has long been an advocate on that subject, with heavy involvement in industry efforts. He chaired the FMI Board Food Safety Task Force, which was appointed in October 1995 by then FMI chairman Bob Bartels.

"I thought I'd get involved in this, we'd get it solved and then move on," he recalled. "But we never got it solved. It's a big, growing issue. The new pathogens are coming on the scene or becoming more prevalent."

Wegman said the strains are beginning to show on those responsible for safety, including retailers, suppliers and the government. But while cooperation among those parties is vital, also needed are efforts to reach out to the consumer.

Wegman raised the issue of ground-beef labeling. The government requires labels for meat, which he called irrelevant. Those labels don't specify proper cooking temperatures, he said.

"But the cooking of ground beef is a serious issue; we should label it for cooking at 160 degrees," he said.

Wegmans found success with such an effort in its own organization. The company labeled ground beef for 160-degree cooking despite concerns that the warning might scare consumers away from purchasing.

"It was scary for us to do that at first because we thought it would substantially hurt our ground-beef business," he said. "But we found our ground-beef business increased and continues strong today. That taught us something. Be honest with our customers. This was a bit risky, but our customers accepted it and gained confidence to buy it."

It also taught Wegman that consumer advice needs to be direct and simple. "You need to start with some basic things," he said. "If the customers become aware of one small thing we can move on to other things. But if we start with too lofty or complicated a message, it won't come through."

Wegman said he hopes the industry can get behind programs such as cooking ground beef to 160 degrees. "It's a pretty simple concept." Also important is continuing to urge consumers to use a thermometer in cooking, he said.

Wegmans also advises consumers on cooking temperatures for other meats in its ads and at in-store counters. The retailer may consider following the ground-beef success with labeling of other meats. "The best way is to specify different temperatures for different cuts, because, for example, chicken is different. It has to be 165 degrees."

But any industry solution must eventually be fashioned in conjunction with the government. "We have more to lose than the government," he said. "And we need to set the example as an industry on a voluntary basis. Then we can ask the government to regulate what worked, rather than coming up with a political solution."

The FMI was an early leader in the Fight Bac program of the Partnership for Food Safety Education. That campaign, which includes a cartoon-like bacteria character, is intended to convey safe food-handling and preparation techniques to consumers. The FMI also has a foundation devoted to food-safety education of consumers and employees.

COMPETING IN AN AGE OF CONSOLIDATION

Another front-burner issue for Wegman is consolidation, specifically whether all retailers -- both chains and independents -- will be able to effectively compete in the new environment.

"Our industry is enormously different than four or five years ago," he began. "Back then, Wal-Mart was much smaller, as were Kroger, Safeway and Albertson's."

Wegman noted that those five companies will represent somewhere between 30% and 40% of the food business once a number of merger deals close. "And it may even be higher before long," he said. "That is a different structure."

But Wegman cautions that few trends in the food industry remain constant for long. "What I've noticed in our industry is that whenever a trend starts, something comes along to reduce the particular benefit of that trend."

Wegman conceded that the independents -- and he includes Wegmans in that group -- may feel threatened by the economies of scale of the big chains. But he said that independents have an opportunity to form alliances that will replicate some of those economies.

"Chains can combine their accounting functions across divisions, so why can't that be an outsourceable business that a consultant can provide to anyone? The same things that drive economies of scale for the megachains can drive them for the smaller operators as well. Maybe smaller companies can think more like a chain and become less proprietary about their accounting or other functions."

Wegman also called upon wholesalers to consider promoting more economies of scale in backroom functions for independents.

The diversity of various types of retailers is a benefit for the whole population of retailers, Wegman stressed, raising one of the very issues that led to the formation of the FMI more than 20 years ago.

"The megaretailer group has the economies of scale, but working against them is the ability to innovate," he said. "That's the weakness of a large organization.

"The smaller companies can innovate but the challenge for them is being efficient. Can we get some of the economies of scale that the megachains can get?"

Wegman counts himself among those retailers who spend time worrying about competitive issues. "We always thought there could be some big force that could come along and cause us problems in buying or economies of scale. We've always been concerned about that."

Happily, that threat hasn't surfaced yet, he said. "One of my personal goals as chairman of the FMI is to help our industry continue to be one in which small operators as well as large ones can continue to compete together."

LEVERAGING TECHNOLOGY'S BENEFITS

Technology becomes a bigger industry issue each year, and Wegman takes a broad view of its effect. "The Internet is such a major area, and e-commerce, in whatever form it takes, will have an enormous impact," he said. "My view is that e-commerce is much more than ordering over the Internet."

Wegman sees the Internet as a facilitator that can be "the backbone of communications between ourselves and our suppliers."

Enter the industry's UCCNet effort. Sponsored by the Uniform Code Council, Dayton, Ohio, this exploratory program seeks to establish a common standard for an industry extranet, with applications that would include scan-based trading and collaborative planning, forecasting and replenishment. It is expected to be available during the first quarter of 2000. Three distributors and three manufacturers are currently involved. On the distributor side are Wegmans, Supervalu and Kroger Co. Suppliers in the project are Procter & Gamble, Ralston and Frito-Lay. Participants are currently validating that the concept works, a process that will be complete by the end of May. "They are looking at synchronization of the data," Wegman said, which will ensure the system will relay accurate information to all trading partners.

Wegman noted the system will incorporate "elements of judgment." If a manufacturer inputs a new cost, UCCNet will require approval by the customer. But if an entry doesn't need approval it will be able to proceed through the system. Wegman likens UCCNet to "a network that will be like a cable system. People will be able to try it and realize there are other ways of doing these things." He said using technology to improve backroom communications is a good place to start.

More questionable would be an industry effort to dictate how technology will be used to merchandise products to the consumer. "It's inappropriate for the industry to develop new means of serving consumers," he explained. "And the closer you get to the consumer the harder it is to get cooperation in the industry."

REVAMPING THE MEALS GAME

Wegman's knowledge of the consumer is particularly strong when it comes to meals merchandising, a front-burner topic for the industry in recent years. The incoming FMI chairman takes a cautious view toward the subject.

"I don't believe there's a common solution to that problem," he began. "The solution in a place like Manhattan is drastically different than where I live. We've tended to look for an industry solution, but I don't think there is one. And there have been a lot of failures because as individual operators we didn't recognize the differences between our customers."

The FMI's MealSolution show was launched four years ago with a message of urgency on the need to educate retailers about fresh meals. But that show, like the industry's overall outlook on meal merchandising, is being retooled.

Wegman said a successful retail program often means different approaches for different customers, which can be difficult and costly. "It's a very different business than the one we're used to."

Wegman has doubts about the ability of some retailers to cross the line into meal merchandising. "Whether we can make the transition is a big question. Whereas it was an intriguing area a few years ago, it has less appeal now. A number of retailers would rather focus on what they already know and see how that plays out.

"And for some that's a wise move. For example, to be successful the megachains would have to focus on many different solutions. That's difficult. There's a real question in the industry about whether this makes sense."

Wegman is more excited about prospects for the emerging Whole-Health trend, which harnesses the strength of supermarkets in food and nonfood in order to meet consumer needs in areas including wellness and self care.

"The components are in many of the industry's stores already," he explained. "It's something the industry is already doing."

He cited store areas like pharmacy, natural food and produce, each of which ties into the effort. "Customers seem to be more interested in what they can do to improve their own health. So there's a lot of interest amongst the FMI membership toward Whole Health. Focusing on that growing trend will help the retail business. It's not a totally new business, just an adjustment."

The success of these and other efforts will be influenced by the quality of in-store employees. Wegman, who is known for running a labor-intensive operation, urges the industry to rethink its approaches to retaining store associates.

"A lot of Generation X employees don't want to work the long hours of retail, and we have to deal with that," he said. "We must do a better job of brining in minority populations, such as African-American and Hispanic. We must learn how to be seen as a better job opportunity. We can all do some sharing in this area."

The supermarket industry has been known for surviving by acting on emerging competitive forces. Wegman's fear of the "big force" emerging that will undercut the retailer's buying ability is so far just a worry. "I've never met a retailer who didn't have fears," he said.

"Hopefully, I'll still be worrying about this 20 years from now," Wegman concluded.