SENATE PANEL HEARS FOOD INDUSTRIES ARE Y2K-READY

JOANNA RAMEY

WASHINGTON (FNS) -- Supermarket and grocery-manufacturing officials assured a Senate panel last week their industries are Y2K-prepared, as lawmakers heading a congressional inquiry into the nation's readiness say they expect millennium bug disruptions to be minimal.

However, Sens. Bob Bennett, R-Utah, and Chris Dodd, D-Conn., chairman and vice chairman, respectively, of the Special Committee on the Year 2000 Technology Problem, say the intricate and expansive nature of distribution channels offers a lot of unforeseen Y2K pitfalls.

"Examining the impact of Y2K on industries like food is the equivalent of predicting the impact of a snowstorm that will occur next year," Dodd said at a hearing focusing on supermarkets' and food manufacturers' Y2K efforts.

Industry officials detailed for the panel the efforts being undertaken to ensure their computers and those of their suppliers are able to read the "00" as the year 2000, and not 1900. This seemingly innocent error is viewed as being potentially catastrophic to distribution channels.

Tim Hammonds, president and chief executive officer of the Food Marketing Institute here, said the FMI's members, representing about 75% of the U.S. grocery industry, have undertaken extensive steps to be Y2K-compliant. This includes test runs with suppliers to see how computers will respond along distribution channels when the millennium arrives.

"The industry is beyond analyzing the problem," said Hammonds, who was joined on the supermarket panel by Mike Wright, chairman, president and CEO of Minneapolis-based Supervalu, and Michael S. Heschel, Cincinnati-based Kroger Co.'s executive vice president for information systems and services.

Hammonds cited ongoing concern about whether U.S. Department of Agriculture-administered food stamps and Women, Infants and Children food programs are Y2K-ready. He cautioned against the USDA implementing last-minute technological changes that could throw the supermarket industry's preparedness out of kilter. A Y2K report issued last week by Bennett's and Dodd's committee concluded that approximately 77% of the USDA's systems are ready for the New Year.

"Do not put new burdens on retailers in the last months of this year to make computer changes that could affect Y2K readiness, particularly for new technologies such as smart cards," Hammonds said, referring to the computer-chip voucher card system that eventually will replace all USDA food-program paper transactions.

One of the Senate panel's objectives in assessing the nation's Y2K readiness has been to preempt any stockpiling of supplies -- such as food -- by those fearing a breakdown of everyday life. Nevertheless, Dodd and Bennett are still advocating consumers keep three to four days' worth of food on hand just in case of any Y2K glitches.

The senators said they expect any U.S.-based glitches that may occur will be able to be remedied within 72 hours. Their advice to keep a small supply of food handy is merely precautionary, much like when shoppers gird for bad weather, they said.

"We do not at the moment think this will be the end of the world as we know it," Bennett told reporters after release of the Y2K report.

Should there be an onset of consumer angst over food shortages, or should any unexpected Y2K glitches cause supply-chain disruptions, Kroger will be ready, Heschel told the panel. As a matter of course, Kroger has about 35 to 36 days of inventory in distribution centers and stores, he told the panel.

Regarding Kroger's Y2K readiness, Heschel said, Kroger is checking Y2K compliance among its 50,000 suppliers, 6,000 of whom he described as "primary vendors." Kroger has budgeted about $30 million to address Y2K issues, which it has been working on since 1995.

"Our critical systems, which we define as those essential to the uninterrupted operation of our stores, plants, offices and service to our customers are approximately 90% compliant and installed today," Heschel said.

"The remaining 10% represents systems that are compliant but not yet fully installed. Kroger expects these systems to be fully installed and operational by the end of the second quarter of 1999."

Supervalu's Wright also detailed his chain's Y2K efforts, which have cost about $26 million. He said the company is working with vendors to protect against any glitches resulting from computer-generated invoices, exchange of funds, transportation, shipping and receiving.

In case of any breakdowns, Wright said, the company, like others in the industry, is ready with contingency plans. "A formal contingency plan is a critical component of the company's overall strategy to minimize potential disruption," he said.

On average, food manufacturers each plan to spend more than $27 million to be Y2K-compliant, with some global companies spending as much as $100 million, according to a Grocery Manufacturers of America survey. The survey -- in which 84 of GMA's 130 corporate members participated -- found that 75% have updated their systems to be Y2K-compliant and 95% said they'll be Y2K-ready by Jan. 1.

Citing this survey, C. Manly Molpus, president and CEO of the GMA here, said it was "unlikely that Y2K will cause substantial interruption in the nation's food supply." He said needless consumer stockpiling of food presents a greater threat.

Indeed, Jeri Bender, vice president for information systems at Nestle USA, Purchase, N.Y., told lawmakers that Nestle expects "pantry stockpiling" over consumer Y2K fears to cause a drop in first-quarter 2000 sales. Otherwise, she said, Nestle isn't forecasting any notable problems arising from Y2K glitches occurring between the company and retailers or raw material suppliers.

"We feel our internal Y2K risk is limited and under control," she said.

Likewise, James R. Kinney, senior vice president of information services for Kraft Foods, Northfield, Ill., said his company's Y2K program should prevent most supply disruptions. For the unforeseen problems, Kinney said, a Y2K, 24-hour command center will be launched during the fourth quarter of this year to continue into early 2000.

Bennett and Dodd are continuing their Y2K review and plan to release a final report on the nation's preparedness by mid-summer. The senators in their interim study didn't offer a report card on food-industry Y2K readiness, saying they still need more information.