SURVIVAL STRATEGIES 2004

LYNNE MILLER / MATTHEW ENIS / ROSEANNE HARPER

As fresh-food managers set their sights on the coming year, their "to-do" list looks pretty daunting.

On top of day-to-day operations at their stores, retailers will face a number of challenges related to the longer-term business of survival in a marketplace that seems to get more sophisticated -- and competitive -- every day.

Their priorities cover a broad range of areas, and promise to test retailers on the technological, political and purely pragmatic fronts.

What's on the list? For starters, there's the ongoing movement to make country-of-origin labeling voluntary. Retailers will support a COOL program, as long as it looks a whole lot different from the U.S. Department of Agriculture's mandatory one. But the effort to replace the USDA's program with an industry-friendly system will require more work on the part of retailers and their supplier-partners.

With mad cow disease and food security concerns on everybody's radar, the need for systems to track the origins and movement of food is becoming critical. Traceability programs are gaining traction.

From a practical standpoint, retailers also need to focus on using category management programs for tracking sales of random-weight products and improving systems for product rotation.

For image and food safety reasons, it also makes sense for managers to shape up store-level sanitation and associate training programs. Proactive managers already have put new systems into place that are delivering measurable results. These programs could serve as a model for other companies.

No doubt about it, the items on this "to-do" list will not be crossed off in short order. On the pages that follow, SN reviews the hot-button issues on the horizon for those in the fresh-food business.

-- Lynne Miller

INITIATIVE 1: TRACEABILITY TRIALS

One year ago, a major outbreak of hepatitis A was linked to green onions. Then the first case of bovine spongiform encephalopathy was discovered in the United States. Retailers, concerned about both quality and liability, maintain a vigilant watch over fresh-food supplies, generally demanding proof of third-party audits verifying the safety of their produce and meats. Yet high-profile cases such as these -- along with a separate tomato-borne salmonella outbreak and three "false positive" BSE tests in the past year -- have raised consumer concern and demonstrated that product recalls will always be a reality, even in the safest supply chains.

Standardizing the labeling and identification of meats and produce to improve traceability has been declared a priority for 2005. For meats, the U.S. Department of Agriculture hopes its National Animal Identification System, slated to begin tracking with radio frequency identification tags the interstate movement of all cattle, pigs and poultry in 2005, will bring it a step closer to its goal of 48-hour traceback for meats.

For the produce industry, results from a recent pilot test by the Produce Marketing Association, Newark, Del., and the Canadian Produce Marketing Association, Ottawa, will help pave the way for similar data standardization and, ultimately, better traceability.

"What we're finding is that a lot of growers and shippers have a thorough form of traceability within their four walls, but once the product goes outside their four walls to the next part of the supply chain, that's where a lot of the traceability information is lost," said Gary Fleming, vice president of industry standards and technology, PMA. "Right now, when most retailers and food-service operators think traceability, they think, 'As long as I know who I received the product from and who I shipped it to, I'm OK."'

The problem with that mentality, Fleming said, is that during cases such as the hepatitis A outbreak, traceback can be slowed to a crawl as each link of the supply chain must search through independent records to inform federal agencies where to look next.

"What data should we be capturing, what's the format of that data, and how long do we keep the data -- that was all proprietary," he said.

PMA and CPMA plan to release the results of the test soon, along with recommended best practices for their members. Fleming said he hopes that 2005 brings a recognition within the industry of the need for standardized ID numbers, similar to Universal Product Codes, to help identify produce shipments. "That's key for traceability, speaking the same language," he noted.

The ranching and meat processing industries have expressed concerns about confidentiality, liability, and the overall cost of NAIS, along with logistical questions, such as who will be responsible for storing and maintaining massive databases on the movement and transfer of cattle. Yet most seem to agree the system will ultimately benefit the industry.

"Previously, the risk that [suppliers and retailers] were assuming, in not knowing exactly where the food came from or whether it was handled properly, wasn't thought to be as high," said Elise Golan, chief of the Diet, Safety, and Health Economics Branch of USDA's Economics Research Division. "But as those types of risks have changed, including now the risk of bioterrorism, their perception of liability and return on investment [for traceability solutions] has changed."

Other, more positive factors have led to the adoption of improved auditing and traceability in recent years, too, she said.

"If growers are able to get a higher price because they can prove their raspberries are organic, or were grown by well-treated labor in very sanitary conditions, then it's going to be worthwhile for them to invest in better traceability systems," Golan said.

-- MATTHEW ENIS

INITIATIVE 2: COOL IT

Congress last month rejected a proposal repealing mandatory country-of-origin labeling for red meat, seafood, peanuts and produce. The action was a setback, but not the end of the road for advocates of a voluntary labeling program.

"I'm hopeful," said J.H. Campbell, president and chief executive officer of Associated Grocers, a Baton Rouge, La.-based wholesaler serving 300 stores. "With the new Congress taking effect in January, you might see renewed interest" in repealing the mandatory regulation. "Retailers can't do anything but try to encourage their respective congressperson to change the law from mandatory to voluntary."

Campbell is a staunch and vocal advocate of a voluntary labeling program. He was one of several food industry representatives to offer testimony supporting voluntary labeling at an all-day hearing before the House Committee on Agriculture in June 2003. Campbell testified on behalf of the National Grocers Association, Arlington, Va.

As it's written, the mandatory regulation is "protectionist legislation," and the record-keeping rules alone are "absurd," Campbell said. The problem with the COOL rule is the burden it places on retailers and wholesalers that are in no way responsible for manufacturing or processing the products they sell, he said.

"They put the burden on the wrong party in the supply chain," he said. "If the government is going to mandate the information, then it needs to be mandated on the processor or manufacturer. They're the ones who know the source of a product."

An industry-friendly voluntary program could be an effective marketing tool, he noted.

"They could use the origin of a product as a positive, as opposed to the inference that it's negative because it's foreign," he said.

-- LYNNE MILLER

INITIATIVE 3: CATEGORY MANAGEMENT

Random-weight category management's time has come -- at last.

With competition getting tougher every day, it's more important than ever to garner as much information as possible on the performance of fresh-food products. Then, operators plotting sales strategies have hard numbers at their fingertips.

It's not an easy task. Such tactics are old hat in the grocery aisles where Coca-Cola could tell a retailer, down to the can, how his diet Coke sales last week stacked up against sales at competitors' stores. Yet when it comes to oranges and ground beef, it's a different story.

Just this year, retailers in markets across the country have gained the opportunity to document the performance of even small segments of their fresh categories against others in their marketplace. That's been made possible by an alliance forged between ACNielsen U.S., Schaumberg, Ill., and the Perishables Group, a Chicago-based consulting firm.

"Perishables is a growth category that has become so complex that retailers need all the data they can get. This alliance gives us a quality database [data from 18,000 stores nationwide]. The information helps retailers identify opportunities that can increase their volume and profitability," said Bruce Axtman, Perishable Group's president and chief executive officer.

Until recently, even a store's own tracking of random-weight items has been slightly hit or miss, based on register and scale readings, information from vendors, and observation, retailers have told SN.

Some retailers said their strategies in fresh departments, including their planned promotions, pricing and product mix, have been based a lot on instinct. Fortunately, advances in technology -- among them expanded bar codes that hold more data -- have made tracking more accurate. However, in the perimeter departments where shrink is high, every opportunity to control it and capture more sales is critical.

"Retailers know their shrink percentage rivals their net profit percentage," said Anthony Tedesco, retail systems specialist, enfoTrust, an Atlanta-based information technology services company. "There's not much space between them. It's even closer in perishables.

"So just keeping shrink down a little in perishables could boost overall profitability."

-- ROSEANNE HARPER

INITIATIVE 4: ROTATION

When it comes to fresh food, today's consumers have high expectations. Topping their priority lists are quality and freshness.

That means fresh products don't get much rest on the shelf. Nor do they sit long anywhere en route to the store.

"You might hear people complain, but our transportation system in this country is great. The highway system, the number of trucks on the road today -- we get products faster than we ever have. It's a good thing because the consumer expects fresh," one retailer said.

When it hits retailers' shelves, product can't stay long either.

Fewer preservatives mean shorter shelf life. In addition, savvy consumers know what fresh bread feels and tastes like.

"They want fresh bread, not just bread," said John Chickery, director of bakery at 13-unit Riesbeck's Markets, St. Clairsville, Ohio. "If you end up selling a couple of loaves of old bread, you've killed your bread sales.

"We have a strenuous rotation program. It's a matter of training store people. It is simply first-in, first-out. Nothing beats hands-on checking dates and monitoring the visual [of the display] every day," said Chickery.

"If you're selling stales, even a few, it shows up in declining sales. Sure, you'll have stales, but you have to convert them to something else or throw them away. I can't emphasize rotation enough."

Meanwhile, Paul Supplee, director of bakery operations at 23-unit Lunds/Byerly's, Minneapolis, agreed heartily. "Keeping the balance is key. Whoever can get it freshest to the consumer has a leg up," Supplee said.

"We have to constantly make our bakery team aware of the importance of ordering enough, but not too much," he said.

"But the way to do that is tracking it every day, recording what's sold, what isn't, [and] marking it on the order guide."

Supplee, like Chickery, stressed hands-on counting and old-fashioned observing.

Associates that rely exclusively on software tools can get so wound up in the computer program, they take their eyes off the shrink itself, Supplee warned.

"You can breed a group of people who trust a computer forecast too much. Computers miss some important variables like a snowstorm or local celebration," he said, stressing the human factor.

"Freshness and shrink go hand in hand, and just-in-time delivery takes care of both. A modest reduction in shrink can have a bigger effect on profits than increased sales," he added. "If you just concentrate on sales, you're spinning your wheels."

Lunds/Byerly's uses a lot of top-quality, parbaked products to good advantage. With them, products can be replaced quickly as they sell down, officials said.

'Whether it's bakery or deli or any of the perishables departments, freshness has always been key to success or failure," said Tony Doering, deli/bakery coordinator at nine-store Quillin's, LaCrosse, Wis.

"Our customers want to be able to count on the fact the sandwich or pie they pick up is fresh," he said.

"Every shift that comes on here looks at every product out there and pulls it if necessary. If you're not rotating constantly, you're going to fail."

-- ROSEANNE HARPER

INITIATIVE 5: FOOD SAFETY

Effective food safety procedures and food safety training programs are always paramount concerns for deli, meat and seafood department managers. Yet once thermometers are checked, counters sanitized, and Hazard Analysis and Critical Control Point procedures studied, it may seem that little more can be done to raise the bar for safety within a supermarket.

There is more to do, however. Establishing a culture of high expectations helps, and according to industry veteran Jim Duban, a field consultant for Chicago-based IGA, the company's Five-Star program has continued to improve safety year over year throughout the IGA network since its 1997 inception. The vast majority of IGA's 1,100 stores have adopted the program.

IGA retailers are given notice that an auditor from San Diego-based Steritech will visit their stores to rate several facets of store performance, including safety and sanitation. Duban said the agency compiles results from throughout the company's network and highlights any widespread issues. "If we found, for example, that a large percentage of stores weren't using deli slicers properly, we would help stores improve training procedures by generating new instructional materials and posters at headquarters," he said.

Companies that receive the auditors' highest rating of five stars are sent press releases and in-store advertising materials to highlight the honor for their local media and customers. These rewards have helped foster a sense of healthy competition within the IGA stores. "Independents are pretty independent. So it was an uphill climb to encourage adoption of this program, but it's since become a way of life for our members," he said.

For other retailers, simple tweaks, such as lowering the temperature in the meat case to 32 degrees instead of 40, would ensure safety while keeping the bloom on meats longer, said Mary Weaver, project manager for FreshCheck, a supermarket auditing division of NSF International, Ann Arbor, Mich. While lowering the temperature a few degrees might raise power bills, the fresher appearance and reduced spoilage should also reduce department shrink.

Weaver also suggested deli departments develop merchandising sets for grab-and-go cases that ensure proper refrigerated air flow.

-- MATTHEW ENIS