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Early next year, Walmart is planning to enact a new “on-time, in-full” (OTIF) program that could be very difficult — and very costly — for some fresh produce suppliers to meet.walm

According to sources, initially the new policy was articulated in a company blog and has since been shared with suppliers privately. It has also been written about in several supply-side trade publications as it pertains to all types of suppliers from hard goods to produce. There does not appear to be a written policy available, as no shippers could be found who have seen it and the Walmart communications department also said it did not have a copy.

The main provisions of the across-the-board policy are that it cuts the acceptable shipping window in half from four days to two days and it requires a compliance rate of 95 percent of shipments.

A shipper whose scorecard comes in at below 95 percent compliance with regard to both on-time and in-full will be penalized a fee of 3 percent of the cost of goods on all non-compliant deliveries, according to reports.

Since February of this year, Walmart has been working with its suppliers to help them get in compliance. In February 2018, the new policy kicks in and presumably fees will begin to be assessed.

“We hope we don’t have to collect any fees from suppliers,” Walmart spokesman Ryan Currell wrote in an email exchange with The Produce News earlier this month. “We would much rather have all the product we ordered delivered on time, so we can get it to our customers, when they are shopping for it.”

Currell added that this program has been in the works since 2016.  

“A year ago we shared these same on-time and in-full delivery goals with suppliers and asked them to begin preparing,” he said. “We will phase these changes in over the course of this year (2017), working closely with our vendors to help reach these targets. We know that when products we’ve ordered arrive on time, it results in happier customers.”

Currell said that this new program is consumer-centric. “One of the best ways Walmart can help customers save time and money is to have the merchandise they want on our shelves when they are shopping for it. To better meet those customer expectations, we are working with suppliers to improve their on-time and in-full delivery.”

While produce industry members appeared to understand the motivation behind the new delivery mandates, there was also concern that they don’t adequately take into account the realities of fresh produce industry production.

Also, it was unclear as to how financial blame would be assessed in a supply sector where buyer-controlled transportation (f.o.b. sales) and third-party logistics providers are commonplace.

One Walmart supplier of California fruits, who spoke under the condition of anonymity, said he was unclear as to how the policy would work. He noted that the majority of his firm’s shipments to Walmart distribution centers around the country are arranged by Walmart.

“Our only control is when we can’t load on time or must prorate supplies,” said the supplier.

He added that shorting a load is not unusual, especially early in a season. “We predict in advance when the crop is going to come off but weather can change that. Are we going to be held accountable for that? That’s going to cause a problem.”

Longtime Walmart produce executive Bruce Peterson of Peterson Insights Inc. opined that the expectation for on-time, in-full deliveries is reasonable. He said retail operations are in the business of fulfilling the needs of consumers and you can’t do that when you have a lot of out-of-stocks, which often occur because of unmet delivery times.

Peterson also noted that the advent of Amazon has changed consumer expectations and the retail environment. Consumers can now order something today and get it tomorrow. Consequently, he indicated they are not tolerant of an in-store shopping experience that doesn’t immediately gratify.

But Peterson also said the fresh produce industry is different and there should be “at least some degree of tolerance.” From his more than 20 years of experience as the top produce executive at Walmart, he noted that almost all of the violations of the OTIF policy are in the beginning or the end of a season when weather and timing do play an out-sized role. His experience seems to have caused him to believe that while the policy is rigid, there will be more flexibility in its execution.

“I’d like to believe that behind closed doors there is an understanding about how this policy will affect produce suppliers,” Peterson said.

Walmart’s Currell said that there is a realization that “fresh produce has a supply chain with some unique challenges specific to the industry,” adding that Walmart is “focused on improvements to the program based on supplier feedback.” But he did not say that there would be any carve-outs for the industry.

Dick Spezzano of Spezzano Consulting Service, another retailer with decades of experience in filling stores with the right product at the right time, took issue with the 3 percent penalty. He said it is not uncommon for a retailer to slap a flat rate — maybe $50 — on a short load. But he said a 3 percent fine could be a big hit.

“What if it’s a load of grapes at $30 a box? That’s going to hurt,” Spezzano said.

Simple mathematics shows that a load of high-priced produce — think grapes or strawberries or avocados — could easily create a fee of more than $1,000 per load.

Spezzano questioned why any retailer would continue to do business with a shipper who did not consistently deliver on-time and in-full. He indicated the solution isn’t to charge a fee to good shippers when they occasionally underperform because of weather and other outside influences. If there is a problem, the solution is to find a better shipper.

Mark Petersen, vice president of transportation for Robinson Fresh, noted that Walmart is a customer and his firm does not comment specifically on the programs of its customers. However, he did discuss, in general terms, the transportation of fresh produce and the ability of the industry to execute on-time, in-full deliveries on a consistent basis. He noted that those two variables are often at odds with each other.  

“Fresh produce,” he said, “is not typically an inventory item.” Usually, it is a pick, pack, cool and ship product with freshness being the No. 1 attribute. For a shipper to deliver on the freshness promise, he must, by definition, estimate his production and sell that production in advance of its being picked and packed. That can mean prorating the volume. Or waiting while the inventory is assembled and the order can be completed.

He said if a customer is willing to sacrifice on the freshness attribute, it is easier to deliver “on-time, in-full” as the order can then be filled from inventory.

Petersen also took a look at the industrywide issue of assessing a fee or a fine on someone involved in the logistics of the supply chain. He indicated that holding the supplier of the transportation financially responsible is problematic when factoring in the risk-reward nature of the total transaction.

A supplier could have a load of product with a value of tens of thousands of dollars. A trucker may only be getting $3,000 for the delivery of that load. Assessing the trucker a fee, which could easily be 30 percent of his take, for a delivery out of compliance seems unreasonable.

Matt McInerney, senior vice president of Western Growers Association, said his organization has been contacted by a handful of shippers concerned about Walmart’s new OTIF policy.

“We have advised them to make sure they understand it fully and know what they have to do to be in compliance,” said McInerney.

He noted that the sale of product on an f.o.b. basis, in which the transportation is arranged and controlled by the buyer, does create an additional factor to the concept of a load not being on time.

McInerney also pointed out that the new electronic logbook regulations of the U.S. Department of Transportation that are going into effect in December of this year may very well affect standard delivery times. He warned shippers that they should take into account what type of disruptive influence this will have on delivery times as they assess their business opportunities with any buyer.

Mark Petersen of Robinson Fresh agreed that the impact of the new regulations are not known, but he reminded that the new regulations have to do with accurately recording hours of service. They don’t change how long a driver can legally drive each day.

Nonetheless, it seems to be somewhat of an open secret that hand-written logbooks do allow for some manipulation, which should not be the case after Dec. 18, 2017.

Bruce Peterson urged shippers to consider all factors when determining with whom to do business. He said no supplier can do business with all buyers and, in light of this new Walmart OTIF policy, it might not make sense for a particular shipper to have Walmart as a customer.

But he also said that it was his experience in his years with Walmart that these types of initiatives do ultimately improve the supply chain.

In response to statements made by Loblaw and Metro about the cost impact of Ontario's impending minimum wage hike, Unifor, Canada's largest union in the private sector, with 310,000 members across the country, said big, profitable grocery retailers are probably best positioned to absorb the increase and could realize economic gains.

"Instead of viewing the boost to Ontario's minimum wage as an economic opportunity, these companies have chosen to focus public attention only on labor costs with its investors and the public. That is incredibly disappointing," said Unifor National President Jerry Dias.

Unifor estimates the anticipated minimum wage increases will positively affect 70 percent of its members at Metro banner stores, as well as 90 percent of members under Metro's Food Basics and Loblaws' No Frills banners — a disproportionate number of whom are women, working as clerks and cashiers. This increase will boost part-time workers' income by as much as $80 per week, based on a 24-hour work week.

Unifor Local 414 President Christine Connor, a Metro worker herself, predicts that a significant share of this new income will be spent back in the stores directly. "Many of our lowest-paid members simply can't afford to shop where they work. Some are forced to use food banks. This increase will not only drive more traffic to stores, it's the socially responsible thing to do, and they need to get behind it."

Unifor Local 414 represents more than 10,000 supermarket workers in Ontario, including nearly 8,000 at Metro.

Price Chopper/Market 32 is now offering a unique line of Misfits produce in 15 stores in New York, Massachusetts, Vermont and Connecticut. This line of produce offers customers more fruit and vegetable variety at a lower cost while helping to reduce produce waste.Misfits-Products

Misfits, a program provided by Robinson Fresh, helps connect consumers to tasty but misshapen fruits and vegetables at a reduced price. In an effort to curb produce waste due to size and shape restrictions from industry standards, Misfits works with retailers to broaden the size and shapes of produce allowed for sale.

“We understand there is produce left in the field because farmers don’t think there is a market for it,” Craig Arneson, Robinson Fresh general manager of the north region, said in a press release. “With the Misfits program, farmers have an outlet to sell more produce and customers have an opportunity to save money and help reduce waste.”

The United Nations estimates between 20 to 40 percent of produce harvested each year is thrown away because it does not meet sizing standards for store shelves. In accepting less cosmetically-pleasing produce on Shoppers’ shelves, the company is also aligning with USDA’s goal of reducing food waste by 50 percent by the year 2030.

“Price Chopper/Market 32 is committed to doing our part to reduce food waste, with programs like Fresh Recovery, through which we salvage tons of non-salable but entirely edible fresh food at store level for the Feeding America Foods Banks in our marketing areas," the company said in the release. "Misfits is a natural extension of this commitment, as it gives our customers the impetus to reduce waste at the household level while highlighting the amount of fresh produce wasted in the U.S. due to cosmetic imperfection.”

Each week, four to six Misfit commodities are delivered, based on what is seasonally available and peaking in freshness. Misfits produce is sold at a 20-30 percent discount. All products are of the same taste and quality of typical produce, but may have a little more character than other produce. Robinson Fresh is collaborating with a handful of select retailers who align with the goals of the program.

Registration is still open for the Southeast Produce Council’s Southern Innovations Organics & Foodservice Expo, which is taking place Sept. 28–30 at the Westin Hilton Head Island Resort on Hilton Head Island, SC. This three-day event will encompass abundant opportunities to experience the SEPC’s four pillars: networking, innovation, community and education.

Southern Innovations will commence on Thursday morning, Sept. 28 with an educational retail organic tour where attendees will have the opportunity to visit retail organic sections of local supermarket chains, including Publix, Kroger, The Fresh Market and Whole Foods Market. Although space is limited, this is an exciting, innovative opportunity for SEPC members.Daphne-Oz-headshotDaphne Oz

One of the many networking opportunities Southern Innovations registrants will want to attend is the General Session Keynote Breakfast on Friday, Sept. 29. The SEPC is delighted to welcome New York Times best-selling author, public speaker and television host, Daphne Oz, as its featured keynote speaker. She is The Chew's fresh face of healthy living and resident practical tipster, sharing helpful information and her unique personal insights to make healthy living fun, easy and — above all — delicious. For Oz, it's all about being healthy and happy. This means: fresh, flavorful foods that are easy to prepare, smart ingredient swaps to help save on calories, and plenty of room for worthy indulgences.

Oz's refreshing, realistic perspective on balancing the happy-healthy life has made her an in-demand speaker on all things food, style, and everyday fun. “We could not be any happier with this year’s sensational Keynote and Educational lineup to kick off our inaugural Southern Innovations Organics & Foodservice Expo,” Teri Miller, SEPC’s chairman of the board, said in a press release. “And Daphne Oz from ABC’s The Chew is bound to bring a fresh perspective on living a healthy lifestyle as well as providing great insight on trends she gathers from her hit daytime television show. We believe she will be able to weave both our foodservice and organic elements together for a fantastic presentation.”

Matt-Seeley-headshotMatt SeeleyAdditionally, Southern Innovations will offer two educational workshops for its attendees. For Workshop I: Getting to the Root of Organic Matters, the SEPC invites attendees to join it with the collaboration of the Organic Produce Network and The Food Marketing Institute’s The Power of Produce, for a data-centric dig into the benchmarks and opportunity gaps in the organic industry today. FMI’s The Power of Produce 2017 is in its third year and comprises a survey of 1,700 people overlaid with IRi and Nielsen data which will be reported by Anne-Marie Roerink, principal at 210 Analytics LLC, to provide the dirt on shopper insights. Attendees will also hear from three industry segment professionals: Mark Carroll, vice president of produce and floral with The Fresh Market, Christian Harris, vice president of produce with US Foods, and David Lessard, vice president of produce with Ahold USA, as they unearth how they have cultivated the organic segment within their own areas in the supply chain. This dynamic panel will be moderated by Matt Seeley, co-founder and chief executive officer of the Organic Produce Network.

“We will first dive into the world of organics and see how it has and will shape the consumption of produce in the Southeast,”  David Sherrod, president and CEO of the Southeast Produce Council, said in the release. “We have an expert panel made up of seasoned professionals that will help us to understand how the organic segment has grown and the potential opportunities we still have in front of us. It has been a wonderful experience collaborating with OPN, FMI and 210 Analytics to bring this data-centric session to our expo.”

Ronnie-De-La-Cruz-headshotRonnie De La CruzIn Workshop II: What’s on the Menu for the Future? A Slice into Foodservice Trends and How We Should Prepare for Tomorrow’s Consumers’ Appetite, SEPC members will hear from Ronnie De La Cruz of De La Cruz Consulting & Training, a seasoned consultant in the fresh produce industry. De La Cruz will be serving as moderator for a panel of foodservice professionals, including Jacquelyn Chi, associate director for the strategic initiatives group of the Culinary Institute of America, Jeff Tant corporate produce director of Performance Food Group, and millennial Kristin Yerecic, marketing manager of Yerecic Label.

“We will cut into the foodservice sector and see what trends will be making their way onto menus across our marketing area," Sherrod said in the release. "We will also have an expert panel offering different perspectives from both a demographic and a professional point of view. We are excited to have De La Cruz Consulting & Training to facilitate the discussion and moderate the panel. Ronnie has been a friend of the SEPC for many years.”

The SEPC is also proud of its flagship program Southern Roots, an amazing networking opportunity for ladies only, bringing together women from all facets of the produce industry. This year’s unique event entitled What Makes a Great Leader? Questions We Should Be Asking will be presented by a panel of women in the Southern Roots Committee and will offer attendees a candid, personal conversation about the challenges and rewards of produce industry careers. Offered in an intimate setting, everyone will have the opportunity to share and interact with one another with the goal that all attendees will leave feeling enriched and empowered.

After a May 8-9 frost damaged apple buds in certain Michigan production areas, opinions are varied on the outlook of the state’s 2017 fresh apple crop.Riveridge-1

“In my opinion, some areas are quite good. And some areas are not so good. At the end of the day we will have about 75 percent of the volume we had last year. Maybe it will be 80 percent,” Scott Swindeman said of Michigan’s 2017 fresh apple crop. “The reason it’s as high as it is this year is that some areas got through the frost and, also, there is new bearing surface” that has matured in the last year.

Swindeman, the vice president of All Fresh GPS LLC, said, “I think there will be more apples in Michigan than is being reported.”

He said a late June estimate was that Michigan fresh apple production would be two-thirds of the huge 30 million-bushel crop of 2016. He noted that he believes it was 30 million bushels “but opinions vary. We had a good year last year.”

Swindeman said that the crops of 2015 and 2016 were “extremely early” harvests. “The crop this year is more normal. It’s safe to say they will be close to three weeks later this year than the last two years. We’re not late. It’s just that we had two early years.”

In Michigan, the earliest Sweet Tango, Gala and McIntosh will be harvested this summer in the last week of August.

“We are down from the record crop last year, which was a super year,” said Ken Korson, the apple category manager of North Bay Produce Inc. “We had an early frost that took our crop down considerably. We’re at 75 to 80 percent. It’s not devastation but we’ve just backed off. The biggest variety hurt is Red Delicious, which is not a huge loss.” All Michigan growers produce “too many Red Delicious.”

Honeycrisp and Gala, which are of a much greater commercial value “came through the best.” Korson said frost losses from these two varieties may mean finishing shipping six weeks earlier than usual in 2018.

The frost was in pockets. Some areas are worse than others. “One farm may have 100 percent and the farm next to it might have 50 percent of a full crop.”

The Ridge, which produces the majority of Michigan’s fresh apples, fared a little better, which is why the crop is not down more. The northern part of the state pretty much will have a full crop. Southern Michigan growers may be off 20 to 30 percent.

Korson said all of Michigan’s apple packers are now equipped with machinery to grade internal and external damage. This grading capability will leave only high-quality fruit for fresh consumers.

Korson said North Bay’s production is mostly in the Ridge area. Those North Bay farms near its Traverse City, MI, headquarters are farther north, so the frost damage wasn’t so harmful to younger blooms there in early May.

Korson noted that last year in Michigan, Red Delicious finished as the top-volume variety. But because of the May 2017 frost, Gala should surpass Red Delicious this year.

Don Armock, the owner of Riveridge Produce Marketing Inc., based in Sparta, MI, said it is difficult to know what impact the Michigan frost will have on this year’s crop.

He said the damage was “location and variety-specific. The real significance will be in packout.” A lower packout would, of course “limit the fresh pack.” But as for the varied opinions on crop damage, “I don’t know who’s right and who isn’t.”

He said the real impact of the frost will reveal itself in late spring or early summer 2018, when the Michigan storage apple crop finishes. “There will be no impact this fall or winter. The question is: When will we finish? That is the only thing [different about this crop] that anyone will notice.”

The national apple marketing scene

Armock expects the coming national apple marketing situation “will be somewhat similar to the 2016 crop, because there has been a reduction in product in Eastern growing areas. Michigan has had frost. There was hail damage in Appalachia and New York and New England. I think it will be somewhat the same as it was last year.”

A factor that should boost U.S. apple exports this year is a decline in apple production in Western Europe, due to an April frost there. “As a result, there should be considerably more business for those who go to Europe and the Middle East,” Armock said.

Because of “a rattling of swords” between the U.S. and its trading partners in Canada and Mexico in recent months, Armock is concerned that U.S. apple exports to the neighbors could suffer. He said, for example, that there are disputes with Canada over lumber and grain trade. Thus, emerging grudges may spill to hurt U.S. apple exports. “With Mexico, I think the same sort of thing could happen.”