Campbell: We’ve done a self-insured health plan for years, and we saw some very good results. But of late we’ve said we’ve got to do a bit more than this.
We were already smoke-free in our buildings; we went tobacco-free. You can’t use, snort, sniff, whatever, on our premises. That was a big culture change with a blue collar work force. We prepared people a year in advance and said we’re going to do this January 1 of 2011. We had smoking cessation classes, all these various things, and to be honest with you, we didn’t get one complaint—not one complaint. There may be closet complainers and they honked about it, but they didn’t honk at the job site. Now some are still running off at lunchtime and having a big time, and they may reek when they come back, but they are not using (at work). That is one very small cultural behavior change that we needed to make.
We’ve also done health and wellness. We have offered for every one of our employees come in and get tested, get blood tests…to benchmark yourself and then 13, 26 weeks later, we’ll test you again. All of these things are hopefully going to change some behaviors, and we’re starting to see that. We’ve actually seen a lot of our overweight employees actually go on some weight reduction programs voluntarily, and we’ve tried to assist them by being the measuring device for that. We just had a presentation last week from a large regional hospital that is willing to do an entire program for all our employees to participate in if they choose. Granted, there is a cost for doing that, but it’s more of an investment if you start getting the results. Now, will these results happen next year or two years or three years from now? No. But I would bet in five to 10 years we’ll see a dramatic change in what our healthcare costs are in the company because we are talking about behavioral changes.
We put in healthy snacks in our snack machines. We have free fruit sitting in every break room. (If they haul it home, we’ve got cameras, we can figure that out.) The point is, we offer that for our employees, trying to engender in them there’s something better than potato chips for a snack; here’s an apple, here’s a banana, sitting in a bowl, free for you to use. We are doing everything that we can.
On the unemployment comp side, we’re fortunate in Louisiana that we went through the tough times of the ’80s and our state built up a billion-and-a-half dollar trust fund that has triggers on it. Once that trust fund gets to a certain level there is a surcharge. We haven’t even hit the surcharge yet on unemployment. But fortunately, we haven’t had double-digit unemployment, either.
Sonnenberg: Jay, you do some of the most innovative things in that regard. We try to do some of those same things but not to the same extent Jay does, obviously. But we allow use of our facilities for yoga classes; we subsidize Weight Watchers. Two, maybe three, years ago we started an eight-week program during the holidays, which is the most difficult time for people to maintain weight, called the CEO Challenge. I wore a pedometer, which I have been wearing just about every day for about two and a half years now, and challenged people to walk more than I did every week. For those that did we would give them a gift, and out of a drawing at the end of it we gave away a Wii Fit. We had a significant number of employees take advantage of that and you still see them out walking today. It’s an idea I got actually from Bunzl; they’ve done it corporately and I have talked to people who are very excited about it.
We are just trying to keep people mobile. We sponsor running events, do a lot of that with our retail stores as well. Like Jay said, it’s going to be a long-term thing. We think we’re seeing that start to turn, but it takes time, and we are very protective of the healthcare plan we have for employees; we want to keep that a quality plan. They are very in tune to that, as every one of us in this room are, and I don’t blame them for that, and we are doing everything we can to hold that cost down and still have a quality program.
Parkinson: We’re doing a lot of the same things. We are maybe a little more definitive because we have actually initiated a program that you can get a discount on your portion of your insurance premium if you comply to certain standards—cholesterol level, weight, all those types of things that are indexes of good health. We have done that now for about three years, and the last couple of years we really haven’t changed. We’re self-insured….We’ve seen a change to where this year we’re actually forecasting our healthcare increases will be half of what they have been in the past. It’s hard to draw a direct line that that’s what’s causing it or what’s happening, but we think it really does have a great effect…I think the poster child for that type of initiative is Steve Burd at Safeway, and Steve Burd gave a great presentation at WAFC this last year. He said for the last four years Safeway has had zero increase in their healthcare cost. And they have been doing it now for eight to 10 years; he’s really a disciple of that.
I think it’s all getting around to healthy lifestyles. We have a program called Give Me a Break, where we have our team members participate in team-related activities. We’ve got volleyball tournaments, basketball tournaments, during their lunch hour. That makes for some rather interesting smells in the office…
We also had one where we mapped out a course from Salt Lake down through our national parks and back, and we got into teams, and based on activity you get certain mile allocations. We had great competition for that. I participated in it; Marla (my wife) was part of that. We try to extend it out into the families, too, because that’s sometimes where your instances of health issues are—in spouses and kids—but I think it’s just a (program) that improves the quality of life. I think that’s what we’re most concerned about. We’d rather have healthy, happy team members and employees than those that have health problems. I think there is a lot you can do with that, but unless you really put a concentrated effort behind it, you won’t see any improvements.
Arceneaux: Well, we are in Amarillo, the beef capital of the world. And I wish I could sit up here and tell you we have these extensive programs within our facility, but we do not. We are self-funded like you guys are, so we have our own healthcare plan. We do a weight-loss program every year; it’s something we kick off the year with and give prizes away. And we do have one workout facility that we allow certain individuals to use. But other than that, honestly we don’t have anything in place in Amarillo that would even begin to touch what you guys are doing. Something we ought to look at very strongly…But the bottom line is, we do have a lot of opportunity in our organization that we need to focus on, through HR, on keeping our costs down.
(Regarding healthcare), all of us know that 2014 is D-Day, basically—everyone is to offer healthcare insurance to every associate—unless something changes at the White House drastically to change all that. But being self-funded the way we are, our plan at that point will be that there’s not going to be an option. Just like our 401(k) plan, you become an employee, when you get to the qualifying moment, you are automatically enrolled in 401(k). So what we are looking at is when healthcare 2014 rolls around, if nothing changes, and a new employee comes on board, they have no option but to be on our healthcare plan. Unless they can prove they have healthcare with their spouse or on their own. It will be an automatic enroll when you become a new hire so we will not be penalized by the government or whoever at that point.
Campbell: Just as a follow-up to that, one of the other things we did is we met with every one of our employees and explained to them that we are self-insured. It was a very eye-opening thing to see employees understand that the company was hitting its wallet (for insurance). They’ve assumed it was this magic insurer or the government or god-knows-who paying this bill. We told them when you go to the emergency room because that is now your primary care physician, because that’s what a lot of blue-collar workers do, (it hits our pocketbook). Once they understand that, they say, “Maybe the emergency room is not a good place for the sniffles,” and they go to an after-hours hospital (or quick care facility) instead. They started understanding the company is footing this and it’s going to impact everybody. You start creating a little bit of peer inquiry…
Like Randy, we’re in the frying capital of the world. The Louisiana market has the highest per capita usage of cooking oil….We fry our napkins. So I’m telling you we have a lot of cultural hurdles; we’ve got to change a lot of habits.[/gn_spoiler] [gn_spoiler title=”Q: As it relates to plastic packaging and more specifically plastic bags, how concerned are you about legislative efforts to ban or tax these products?“]
Sonnenberg: It’s been an issue in the Northwest for a long time, California, Oregon and Washington. It was in the state legislature in Washington last year or maybe the year before. We were, fortunately, through some lobbying efforts, able to convince them not to put a tax in at a time when the economy was so bad and getting worse. What we agreed to do and we proposed to them is we would go to a program called “Choose to Reuse,” which I see the hotel here is using now if you look on the mirror in our rooms. That’s been pretty successful; we have all the stores putting up signs that say “Choose to Reuse,” and most of the other chains in the area all agreed we would do that to try to avoid that situation. But it’s going to come back at us, we’re sure about that.
Parkinson: We live next to the Pacific Northwest, so we get the effects of them, unfortunately (laughter). I think it’s being relevant in your communities, that you’re a voice of advocacy for the realities of the world. We took the initiative…of really becoming as best we could a green-type organization, getting that reputation. In fact, I think we’ve gotten an award from Salt Lake City for that on occasion. But we engaged our city councils, the different governmental entities that were considering these type of things…There was a surge of interest in that sometime ago, and we found that when we got in counsel with them and really informed them of the realities of the world, not just the flavor of the month or that which seemed to be politically right to do, when we really got down and shared the facts with them and started talking in terms of that, they became very, very reasonable and withdrew their interest in doing a lot of the type of things they were considering. So I think it gets front page, it’s a great thing to do, it gets a certain constituency excited when governments decide to do those types of things, but when you really start to boil down the facts of it and help them understand that, it kind of takes the wind out of that sail.
So we try to be relevant from the standpoint of being in the dialogue and not avoiding it and not opposing it. Not going to city councils and slamming our fist and saying, “Don’t you dare do that, look at all the costs,” and so forth. Let’s really deal with what the facts are, and the facts are what they are. But our governments have backed off of it considerably and we’re going to continue in that dialogue because, like Dean said, it will be revisited again. It’s not over.
Arceneaux: We have some of the same situation because we do service New Mexico and (there are) tree-huggers in some of those areas. In some of those areas they have already put a tax in locally. Not the whole state, but in certain local communities within New Mexico they’re putting a tax on plastic bags or making a big push to get rid of plastic and everybody converting back to paper bags. In your world, if they pass a tax and everybody quit using plastic bags that would not be good probably (questioner works for a plastics company). But at the same time, as Rich and the others were saying, you have a fine line…You want to do the right thing, we all want to do the right thing and be an advocate protecting the environment, but at the same time, you are going to have the different areas that get on the bandwagon, so to speak, more than you’d like to be. There’s a fine line that you kind of have to ride the fence on both issues, but just as Rich said, when the government starts really putting a push and they get pushback from the other end of it, they start looking at it and realizing that maybe not all the pieces of the puzzle are exactly the same.
But we do have areas that have already put taxes against plastic use.
Campbell: In our area there hasn’t been a tax on plastic bags, but there has been a move every year to re-tax bottles, bottle bills, whatever you want to call it, to recycle usable containers like that. That has been fought aggressively because we have curbside recycling for most of the communities that we serve. We are reactivating our recycling program at retail. We are going to have barrels, very attractive barrels, to take the plastic t-shirt sacks back from retail and send them back to the warehouse, if nothing else, to make the communities we serve and our retailers appear to be very sensitive to that reality. So we can at least get it out of the unrecyclable trash and get it back to our facility where we can get it to a recycle facility. How successful we will be, the jury is still out on that one, but we are going to do it. We are going to put forth a very concerted effort to be in the forefront of trying to recycle t-shirt sacks.
Arceneaux: We have that same process in Amarillo. We do have the retail side where we do have the bins, and we do take back the plastic and have it recycled, so we do have that initiative, and it’s been in place probably for a year and a half.[/gn_spoiler] [gn_spoiler title=”Q: With the economy the way it is, are your private label sales increasing, decreasing, staying flat? What is driving these changes?“]
Campbell: There is definitely a shift now from branded to private label, and then to our value brand because we have a value brand as well.
The unit sales are really eye-popping, particularly when we promoted it again, got it right in the forefront of the consumer’s eyes from a price-point perspective but also a variety and selection perspective. Sometimes we think the consumer knows they have a private label alternative or a value alternative in our stores, and maybe they just don’t know that they had that alternative from the brand. Sorry to the branded manufacturers out there, but the reality is a lot of times the consumer didn’t know we had one. Our sales are doing very well on that.
Arceneaux: Likewise, in private label our sales continue to grow….Our total volume is up, and it’s the same thing Jay just said—our second-tier program. About a year and a half ago probably, we had only 100 SKUs of our second tier; now we’re at over 250 SKUs. Now that we can offer them a second tier program throughout the store in addition to our first-tier program, I think it is a driving force behind a lot of the growth in private label. And the promotions. We’re still one of the few warehouses—and I say one of the few, there may be many that I don’t know about—that we still do what we call “private label sales,” where the whole ad is private label, and every member at Affiliated runs the same ad the same week. So we kind of force a private label through our warehouse to our members, and we do that eight times a year. We do total private label sales and that continues to generate and grow the business for us as well.
Parkinson: I would like to go along with Jay and Randy and say we’ve had the same experience, but we haven’t. Our private label percentage has remained relatively flat. I don’t know if that’s because we were doing such an extraordinary job with it before, because it is a huge (thing) in our marketplace. In surveys we have 75 percent recognizability of our label. We don’t have 75 percent of the market, but I think maybe it was the fact that we were able to retain some of the business that we would have otherwise lost had we not had a strong private label.
But we picked up the Albertsons stores that I think all of you know about, and we thought we would get a huge spike there; we thought we would just have a gold mine just to pick up nuggets as we were walking through the store. What we found out is that shoppers who were shopping in those stores didn’t relate to private label. They were Albertsons shoppers, they were branded shoppers, and we didn’t see the penetration that we had hoped we would get out of that.
I think it’s knowing your market, I think it’s knowing your customers. I’m just glad we’ve got a very strong private label. Without it we would have probably really been in a ditch. But frankly, we didn’t see the spikes that Randy and Jay have seeen.
Sonnenberg: That’s the same experience we’ve had in the Northwest. We did increase our second-label SKUs a little bit, but what we saw happen, and our current sales are pretty flat in private label, is two years ago when the economy really got tough, we saw a pretty good jump in private label sales, and that came out of the hide of the national brand. After about a year, year and a half, to earn that business back, we started seeing (the national brands) promote a lot harder, they came in with different items, different price points on items. In the long term that’s good, and that’s why you need a strong private label, because the national brands stay strong as well when you do that—they compete against each other. But I think what we’re seeing this current year is the heavy marketing by the national brands.[/gn_spoiler] [gn_spoiler title=”Q: As a wholesaler, what are your biggest challenges as it stands today and how are you addressing these challenges?“]
Sonnenberg: Wow, where do we start? Expense control as you talk about fuel, insurance…they’re coming at us from so many different sides that how you get a handle on all that, what types things, what kind of innovation can you do? We recently converted all of our HVAC systems in our offices, both offices we run, and went to digital systems in there. We’re saving about 35 percent on the energy usage we’ve got. We put solar panels in our store remodel we did on our Rosauers store in Hood River, Ore. We converted our warehouse to an ammonia refrigeration based system and that has saved us a considerable amount of energy. That’s a huge one.
The second one, I would say, is the availability of capital for expansion for independent store owners and the difficulty they’ve got getting financing. The bar has been raised so high with the lenders to qualify that it almost takes the small independent owner out of the market. We’ve got a number of projects on the drawing board that two or three years ago would have been off and running, and now it takes a lot longer to get them going and they need a lot more investment out of their own pocket. It’s very difficult, so I think that is stifling some of our growth. I hear about that loosening up a little bit, but we don’t really see that yet. Forty percent of the homes sold in our market are foreclosed homes, and it’s going to stay that way for a while. It’s driving down the price of property and the banks don’t want to lend on any kind of property right now.
Parkinson: I think you’re looking for candor here, right? You want honesty and you want truth; I think all of you are seeking for that and that’s what we’re trying to give you today. I’ve been in the business now a little over 26 years, and I’ve probably not sensed the pressures on the independent that I have in those 26 years, for a host of reasons. Economics certainly, competition certainly has a factor to it. The thing I am probably most concerned about is the next generation. I think it is going to be increasingly hard to get the next generation or the ensuing generations as excited as the preceding ones in being an independent. An independent to me is defined by that fierce entrepreneurial spirit; they just do what they have to do to be successful, and that’s why we love them and why they’re probably the most difficult people in the world to deal with. But I worry sometimes that it’s not translating down at the same levels that it has in our past. Now, I say that advisedly because we do have great independents that have family succession and they’re into their third and fourth generations. We have a handful of those. But as I look in my crystal ball, I am anticipating that I will probably be dealing with fewer retailers in the future but probably larger independents as a consolidation effort goes through. I guess that’s healthy; I guess it really doesn’t matter if it is or not because if that’s the reality then I’ve got to have an organization that responds to that opportunity.
The spirit of the cause that independents have been known for…some of my best friends in the world are independent grocers, and the things we have gone through together have created that bond of friendship and relationship and I am finding there is a group that are newer generation that don’t have that sense of cause for the cooperative, that are willing to look at compromised opportunities for a nickel and may affect the viability of a cooperative system in our part of the world. That worries me; that worries me greatly. And it’s those kinds of things that I have a hard time getting my mind around. You can talk to people, you can encourage them, you can exhort them, you can give examples, but at the end of the day, it’s what’s in their hearts and what drives them. And I think those realities are things we have to be prepared to deal with. I would hope, as Cal Miller (of Associated Grocers of Florida) so eloquently said in our board meeting, that we can work together better to get some of the economies of scale of our system because I think we are going to need it in the future. I just think it’s going to be a tougher challenge for cooperatives to be relevant in an increasingly consolidating world.
Arceneaux: I have the same concerns (as Rich) in terms of the next generation. We’re all dealing with cooperatives, and in some cases, the retailer doesn’t always have the best succession plan in place. Fortunately for us, the major retailers we service have that in place. However, there are many of them out there that we service that do not. If there’s anything that keeps you up at night a little bit is the fact that, as Rich said, one day you are going to wake up and where you were serving 700 retailers, it may be only 500 larger ones through consolidation, or the same retailer buying out another retailer because he has no succession plan in place.
I know Jay and (his company) have done a phenomenal job in Baton Rouge with succession planning with their members. I think we really have to step up and help our members that do not have succession plans in place, so that we do know where our foothold is going to be in the next three years, five years, 10 years from now and really understand where your customer base is going to go.
As we continue to compete in the marketplace, and the marketplace doesn’t get any easier, one of my concerns is that the retailer adapts to that change. Not try to reinvent the wheel or change their identity or who they are, but there are some things, based on the economy, that they do have to make some changes (in). They have to focus on adapting to those changes rather than sitting back on their heels and losing volume and just dying a slow death. They have to be willing to step up and make those changes and adapt so they can continue to compete. That’s one of the biggest concerns I have. As a wholesaler we can put out new marketing plans, we can put out new products, we can do everything we can think of as far as the wholesale level to help the retailer change what he is doing at market or be more aggressive or be more competitive, but if they don’t embrace that and take the ball and run with it, then they are going to sit back and have a slow death. That’s the biggest thing that concerns me, is that independent operator needs to embrace the change and make the decision to change, to accommodate the change in his market.
Campbell: Several years ago I was asked by a trade press person what was my biggest fear in this business. He was really anticipating the answer was going to be Walmart, that they’re going to run us all out of business. And I said no, I have one fear—that the independent retailer doesn’t want to get out of bed in the morning and go put the key in the front door. And that is still my biggest fear today. Our ongoing mission is to serve independent retail grocers; if they do not want to get out of bed and put the key in the front door then they are clearly sending a message to me that our organization does not provide what their needs are.
Our organization has got to provide for them the lifestyle that they want to have. Not just the livelihood they want to have, but a lifestyle that they want to have, and this new generation has a very different perspective on that. They’re not going to put in 70, 80 hours a week like maybe the predecessor owner did in that business, so we have to be a resource center that provides a lot of back-office tools, technologies, services and programs that that retailer wants to have. And that’s what we have been trying to do. There is no silver bullet in this.
The other fear that I would have is this new consumer. This new consumer that’s out there is a new generation of consumer and how do we tap into that? Don’t ask me—I don’t twit, I don’t Facebook, I don’t do all that stuff. I am fortunate I can operate a Blackberry or use the telephone….but I am not the target consumer. The target consumer out there is a very different person, and our folks are out there trying to develop a variety of social media techniques and processes that our retailers can utilize to tap into this new consumer because the way they view shopping and the way they source their needs is very different than any of us in this room, very possibly. That would be my concern—that we have to remain relevant to the retailer, but the retailer has got to want, have the desire to be in this business. That’s the tough thing, and we can’t instill that. We can facilitate it, but he’s got to have that desire.[/gn_spoiler] [gn_spoiler title=”Q: As the cost of just about everything continues to increase, what percentage do you expect food prices to increase by by the end of 2011?“]
Campbell: I will start that one on inflation. I am always amused at government statistics that they come out with. The core CPI (consumer price index) does not have food and fuel (included). Well, if you don’t have fuel you’re not going anywhere; if you don’t have food you’re not going anywhere, for sure. So those are the two key components as far as I am concerned. But even without food and fuel, you’re seeing a two-tenths to three-tenths a month increase; with food and fuel, it’s now six-tenths, seven-tenths, eight-tenths a month increase. I think we are going to be in for a very high inflation year this year. When you look at all the factors that are going to be in there, I think it could exceed 5 to 6 percent. That’s just me.
Arceneaux: I read a report that the commodities are predicted by the end of this year to be (up) 4 to 5 percent, so I agree with Jay; we’re going to look at 5, 6 percent inflation by the end of this year on groceries, no question.
Parkinson: We don’t budget for it, but we are in the 3 to 5 percent anticipation. We’re seeing that in our markets to that degree. But it’s just such a volatile situation. You never know what circumstances might come up that might change that dramatically.
Sonnenberg: We do budget for it, but very conservatively, and we have had significant debate among our board and staff on what we think it’s going to be. We try to read all the so-called experts, what they put out about where inflation is going, and I think it’s going to be in probably the three, three and a half percent range from now to the end of the year. Beyond that, we’ve calculated about 2 percent.[gn_spoiler title=”Q: Any closing comments?“]
Sonnenberg: Just thanks for being here. We appreciate the support and all we get from ROFDA and the support you give to us as independent distributors and cooperative wholesalers, and it’s great to see everyone here again and we appreciate it.
Parkinson: We belong to a lot of trade associations, and…they are great organizations and they have great purposes and that’s why we belong, but for the uniqueness of the retailer-owned (wholesaler), ROFDA is probably the most relevant for us. I’ve told Ferrell (Franklin, CEO of ROFDA) that before. I’ve told him he can 10 times my dues and I’d still come back. Don’t do it! But I think the opportunity of having these type of settings where we can talk very candidly with one another and get on the same page with each other because you’re our success, you associate members are the success facilitators, whether it’s Associated Foods in Salt Lake or URM or Affiliated in Amarillo. It’s important, I think, and I probably believe it more strongly than most, that relationships really do define trade associations, organizations and people. I really appreciated Mr. (Bob) Livingston’s comments today (“How You Do What You Do”). I think relationship and experience are what business is about, and if we get so finite that all we have are financial considerations, trying to save our way into prosperity in tough economic times, we’re not going to be very successful. So I appreciate everybody here. I appreciate my fellow retailer-owneds; I draw great strength in coming together with them twice a year and learning from them on a regular basis. And I think it’s a unique trade association and I give great compliment to Ferrell for all you’ve done. We’re encouraged by a new generation (of ROFDA staff members). I think we’ve got nothing but positive opportunities for the ROFDA organization. I have a lot fewer miles ahead of me than I have behind me, but by the same token, I am encouraged that these kinds of forums can still take place. And they are beneficial to Associated Food Stores.
Arceneaux: Pretty hard to follow that…Being the newbie on the board…First of all, we are still in the people business. This is still a people and a relationship business. So many other businesses in the country take out all the personal and all the friendships out of it, but the grocery people are still friend- and relationship-building people. Francis (Cameron) said it yesterday. We are part of other organizations as well, but we are ROFDA, as Francis (spoke) it really made me sit back and understand who we really are as ROFDA. We are all retailer owned food distributors, it’s who we are, it’s what we do every day. It’s who we service, it’s who we wake up every day and put the key in our door and know the challenges we have to face every day and what we have to do to help that independent retailer. So when you have an opportunity to be part of this type of organization, that is on the same page as you…Just by allowing us to come together and share those ideas and share all the same daily (experience)…for us to come together and work together and share ideas and the values of what we represent I think is phenomenal. I’ve just very proud to be part of ROFDA and I look forward to the growth and the future of ROFDA, I really do.
And to all our vendor partners, without you guys, we couldn’t open our front door every day, could we?
Campbell: Again, I would like to express my thanks to our vendor and associate members who are present at this meeting and sponsoring this meeting. I’ve been coming to ROFDA events since before it was ROFDA, when it was SFCA—Southeastern Cooperative Food Association. Our first one was in 1976, and back then we would meet at somebody’s warehouse. We’d go to the city where the warehouse lived and we would just merely have a share group, talk about our business. We didn’t have vendor partners there until we figured out we were pretty limited in where we could go because we only had a few warehouses, so we finally figured out we’d better invite some folks to join us and let’s broaden our net and actually create an organization, and this is what has prospered under the tutelage of Jimmy Martin and Ferrell Franklin. And we have been very blessed to have very dedicated, committed people leading our organization, to corral us together twice a year to talk about things that are pertinent in our business. But more importantly, to facilitate the development of our relationships. As Rich has said countless times and I believe very sincerely, is this is what I live for, is relationships—that’s the most important thing that I do. Frankly, making money to me is very, very easy. Building relationships is work; it takes time, effort and commitment to build a relationship and maintain a relationship. Whether you do it in business or with a spouse or within your family, it does take a great commitment on your part to make that work and be successful. Because of ROFDA we have been able to broaden our net and our relationship with a lot of wonderful people.[/gn_spoiler]