Picture this setting. The neatly manicured grounds of the spectacular Broadmoor resort are underfoot, the Rocky Mountains are in the background, and the sky above Colorado Springs is a crisp blue. Hundreds of dark-suited senior executives are milling about an early evening reception, sipping wine as white-gloved waiters offer curious looking hors d'oeuvres. People are smiling, shaking hands, making new acquaintances and reconnecting with those whom they haven’t seen since the prior year when the Grocery Manufacturers Association last held its annual executive conference at The Broadmoor.
This amazingly serene setting and cordial atmosphere kicked off the annual gathering of food industry leaders earlier this week, but it would give way in subsequent days to substantive discussions on some amazingly thorny issues confronting the food industry.
The big picture focus is understandable considering those who attend GMA’s executive conference tend to have significant responsibilities that require they look beyond the horizon in order to steer their companies clear of hazards and toward new opportunities. For example, here are a few of the things that were top of mind with GMA attendees:
Implementation of the Food Safety Modernization Act – This landmark legislation became law back in January, and now the hard part begins. The folks at the Food and Drug Administration have to promulgate regulations as required by the law and that is expected to be a multi-year process. The significance of the new law was illustrated by the fact that deputy commissioner of foods for the Food and Drug Administration, Michael Taylor, and FDA commissioner Margaret Hamburg both appeared on the conference program. The new regulations are likely to come with new fees given the state of the federal budget, even though Taylor indicated he isn’t a fan of fees. Nevertheless, he and commissioner Hamburg acknowledged FDA’s resources are strained. “I don’t want to say we are overwhelmed, but we are fully occupied,” Taylor said. New record keeping requirements and the use of third part firms to accredit overseas touch points in the food supply chain will be huge new challenges for food suppliers.
Growth – Everyone’s favorite topic and the most perplexing because it’s hard to come by, especially in the United States where the current spending climate is lousy and longer term demographics are unfavorable for consumption. “The critical issue this industry faces is growth and the key to growth is innovation,” said Don Knauss, chairman and CEO at Clorox. That’s why Clorox is eyeing new market opportunities in such areas as acute care facilities where an estimated $1 billion is spent on hard surface disinfection. Very little of that amount is spent on bleach-based cleaners, so Clorox is looking to develop some innovative formulations to pursue growth in non-mass market channels. In addition to expanding existing brands into new segments as Clorox is doing, Nestle USA chairman and CEO Brad Alford contends growth possibilities are available to established brands by exporting them to new markets. In Nestle’s case that means taking some of its brands that are highly successful in Mexico and bringing them to the United States. “There are more Hispanics in the United States than there are in Spain,” Alford said. The same philosophy was applied to Brazil where the company’s Kit Kat brand became the number two confectionary brand less than a year after its arrival.
Labeling and consumer education – People increasingly want to know what is in their food, and first Lady Michelle Obama thinks new front-of-pack nutrition labels will help people make better food choices. GMA, the Food Marketing Institute and other industry stakeholders developed the new “Nutrition Keys” front-of-pack label that summarizes information found on the nutrition facts panel. The new labels will begin appearing on store shelves soon and will be supported by a $50 million public education campaign, which could result in new category dynamics and market share shifts if the labels influence shoppers behavior.
Hunger – Looking beyond domestic economic challenges that have given rise to the issue of food insecurity, those focused on the future are looking at a global population expected to reach 7 billion people this year and 8.2 billion by 2025, according to the global consulting firm A.T. Kearney. The issue of whether the planet has the production capacity to feed the masses is an issue that has been around for decades and it isn’t going away. As Bumble Bee Foods president and CEO Chris Lischewski noted, sustainable fisheries practices cap his company’s annual harvest of tuna at about 90 million tons. “God forbid China decides they like canned tuna because there isn’t enough of it to go around,” Lischewski said.
Food waste – “The issue of food waste and hunger are inseparable,” according to Pam Bailey, GMA president and CEO. The strange thing is no one quite knows how much food is actually wasted and the best estimate so far comes from the Environmental Protection Agency, which extrapolated a food waste figure by analyzing landfill content. By EPA’s account 34 million tons of food is wasted annually and 14% of that amount ends up in landfills where the decomposition process produces methane gas, which is bad for the environment. The challenge for the food industry is to more accurately measure waste to better manage it and ensure that less is wasted.
Water shortages – As those involved in the food business contemplate a future where increased consumer demand requires ever higher production, issues related to the availability, price and equitable distribution of water are going to escalate. The coming decade will see issues related to water use revisited with extraordinary intensity especially since agriculture purposes account for the bulk of the nation’s fresh water consumption and the industry uses outdate and wasteful irrigation practices. “Competition for water will become so intense that 70 and 80 year old laws will be re-litigated,” according to Scott Faber, GMA’s VP federal affairs.
The unifying theme behind coping with and overcoming all of the challenges was the familiar topic of collaboration. It was embodied in the conference theme of “Connecting Today to Grow Tomorrow,” and spoken of so frequently at the meeting that it would have become cliché if not true.
“I’m a fervent believer in collaboration,” said Linda Heffner, EVP merchandising at Sam’s Club. She credited joint business planning as an important factor in Sam’s producing six sequential quarter of accelerating same-store sales growth. “I think we are better partners at Sam’s Club that we were a few years ago.”
Collaboration can lead to an improved focus on what Nielsen chairman and CEO David Calhoun referred to as the demand chain which is different than the supply chain.
“The demand chain is the process of aligning your entire business system to attract, motivate and retain you most profitable consumers,” Calhoun said. “The demand chain today is where the supply chain was 30 years ago.”
Nowhere was the issue of collaboration more evident than on the topic of the new food safety regulations. On the final day of the conference GMA head Bailey and FDA commissioner Hamburg traded platitudes, which came across as sincere and reassuring.
Bailey said Hamburg had infused FDA with new ideas, new talent and a new approach following her appointment in 2009.
“She is a great leaders and the nation is fortunate to have her leading the agency,” Bailey said.
Hamburg reciprocated upon taking the stage as the final speaker at the conference. She commended Bailey for her leadership and noted that a great deal of the progress FDA has made on food safety was attributable to GMA.
“We have found in GMA a truly outstanding partner,” Hamburg said.
It’s good for the food industry to not have an adversarial relationship with the body that regulates it. It’s one less thing to worry about.