THE NEW CODE IN PRODUCE

Retailers are starting to play hardball with the supply side of the produce industry.Some major chains are telling grower-shippers they will reject perfectly good -- even top-quality -- bulk produce unless it arrives already stickered with new standardized identification codes.The codes, called price look-up codes, or PLUs, are designed to add computer-based efficiencies to the produce department.

Retailers are starting to play hardball with the supply side of the produce industry.

Some major chains are telling grower-shippers they will reject perfectly good -- even top-quality -- bulk produce unless it arrives already stickered with new standardized identification codes.

The codes, called price look-up codes, or PLUs, are designed to add computer-based efficiencies to the produce department. While they have been in existence since 1990, it is only now, as companies search for new efficiencies, that many more retailers

are taking them seriously as ways to accurately measure item movement and improve on accuracy at the checkstand.

If retailers are taking the codes seriously, it follows that their suppliers must, too. The changeover to standardized coding can be expensive and cumbersome for grower-shippers, and requires reprogramming of information systems at the retail level as well.

To get a better sense of what's involved for both sides of the coding issue, SN visited Zirkle Fruit Co., Selah, Wash., a grower-shipper that, at the risk of alienating some customers, has just undergone a major expansion to accommodate mechanical stickering of produce with labels bearing the standardized codes.

SN also interviewed Ray Klocke, senior vice president of produce at Safeway, Oakland, Calif., a customer of Zirkle, and one of the large supermarket companies that has recently changed from internal coding for bulk produce to standardized PLUs. (See related story.)

"This is a very controversial issue," said Keith Horder, director of sales and marketing at Rainier Fruit Sales, an umbrella marketing organization for nine grower-shippers, including Zirkle, in Washington's Yakima Valley.

"We've got a lot of customers who have said they will take PLU-stickered fruit only or they would rather be without fruit in their stores. Major, major retailers. A&P, Safeway, Meijer. Supervalu is very, very adamant on it. Randalls in Texas," Horder said. "A lot of the progressive, larger retailers, they see the benefits."

Some retailers don't want the codes because they have internal coding systems in place already and are not at a point where they want to make changes. "Some retailers want them and some don't. I don't see why. It's for the betterment of the entire industry," said Horder, who worked in the supermarket produce business for some 20 years before leaving his most recent position as corporate director of produce at Supervalu, Minneapolis, to join Rainier last fall. From both sides of the table, Horder has been a strong proponent of standardizing information in the produce industry, even if the process hurts a bit at first.

The typical way of doing business has been for grower-shippers to provide bulk produce without labels and for retailers to put them on at store level.

Retailers, with their keen eye on labor costs these days, want -- or even insist -- that grower-shippers like Zirkle take on the burden of applying the labels. This allows fruit to go directly from packing cases to store displays without a clerk having to sticker the items.

Zirkle Fruit Co., among a growing number of suppliers, decided it was worth taking on the work, despite the high costs involved.

"We're looking at it as a supplier and as a partner with retailers to give them the tools that they need to keep the consumer happy and to do the things they need to with their retail systems," said Horder. To add the stickering capability, the firm had to invest in special machinery, hire and train additional staff to monitor the machines, carry stickers with PLU numbers for the increasing variety of apples available, and ensure that the right PLUs are needed. "It is a huge investment of time and money and research," said Horder. "It's not something you just do."

"It has rendered obsolete a lot of the equipment we have in this industry," said William Zirkle, president of Zirkle Fruit Co., who also serves as president of Rainier. Zirkle currently ships some 4.5 million boxes of fruit per year. "Where [the industry] has not had the latest up-to-date electronic equipment, it has rendered those plants obsolete to the point where there are major, major renovations of equipment -- I'm talking millions of dollars. It's not just a little attachment. It's to the point of even shutting down some plants."

Zirkle, in fact, had to shut down one of his longtime packing sheds, where labels, when requested from retailers, were applied by hand and apples were hand-sorted for size and color. "It's the end of an era," Zirkle said as he stood in the now-silent See The New, Page 16

shed, which he had closed just a few weeks earlier. "It's eerie. It's a little sad. No, it's a lot sad," he said. "We're now in the electronic age, and this is the old way."

The silenced shed is a 10,000-square-foot facility. After pausing there when SN visited, the next stop was his family-owned company's new packing shed, which is almost 10 times as large and has workers on two shifts to keep up with exploding retailer demand for its stickered product.

The expensive heart of the packing operation here is the new electronic sizing and color sorting equipment, which cost the company more than $2 million, and the computerized stickering machine itself, which spits out coded labels onto the fruit at the rate of 120,000 apples per hour.

Each computerized stickering machine, Horder said, costs more than $100,000, and to make the investment worthwhile, Zirkle had to lease two. Under the PLU system, there are two codes for many varieties of apples, one for large-sized, and one for small-sized fruit.

Thus to provide retailers with properly labeled fruit, two stickering machines are needed per packing line, one to sticker small and one to sticker large apples. The code for a large Fuji, for instance, is 4131, while that for a small one is 4129.

Because one tree bears both large and small fruit at the same time, Horder explained, the computerization is needed to direct the right stickers onto the right fruit.

Here's how it works: First, the apples make their way through the packing house. They arrive in their wood bins from the orchard and are dumped onto old-fashioned sorting tables. Each bin holds 25 loose bushels. They're picked over for bad apples as they make their way along a conveyor belt and then bob along through water-filled troughs for a bath. Then it's on to the dryer and waxer, just like in a car wash.

The shiny apples then move onto the sizer, which has an optical color sorter attached to it. The sorter was adapted from its original use in the tomato industry, which uses it to sort for degree of ripeness, said Zirkle's son Mark, the firm's production manager. Then comes the stickering apparatus, which requires a full-time staffer to monitor. Each of the two stickering lines can accommodate seven different rolls of stickers. The rolls must be loaded and replaced by hand. The stickers are actually slapped onto the apples with rubber bellows aligned with each spool.

It sounds like an exact science perhaps, but in person, the machinery is easily mucked up with the occasional stickers that go awry in the process. This requires the line to be stopped and the spool adjusted.

To work the PLU program, Zirkle has had to hire three extra employees. So many stickers run through the machines, Mark Zirkle said, that the company orders in 50 million at a time now just to keep up.

Zirkle leases the labeling machinery from Sinclair Systems Intl., Campbell, Calif., which also supplies the printed labels as part of the package.

The machine has helped bring the company a very high level of accuracy and speed. Retailers need at least 90% of the fruit they receive to bear stickers, and the machines help deliver apples that are nearly 100% stickered, Horder said.

Despite the challenges of going on line with the system, William Zirkle predicts that just two years from now, 80% to 90% of the apple industry will be stickering fruit with PLUs. Today he estimates that some 10% or 20% of grower-shippers are on line.

"I think we have not been meeting the needs of the retail side of the industry in terms of product identification," he said, adding that without proper code numbers, retailers haven't been able to track actual sales at the store level to determine what items and what sizes are selling. "They have been forced to average prices. That hasn't been good for them because they really don't have any cost accounting, if you will, in terms of what's profitable for them and what isn't. You know the problem at the checkstand. They think an apple is an apple is an apple," he said.

"That hurts us at this end of the industry, too, because we really don't know what we should be doing in terms of raising the most profitable items. Retailers really don't know what their higher profit items are, and we don't either," he said. He added that packaged goods, unlike bulk items, have the luxury of bar codes that come automatically on the wrapper. Said Horder: "PLU codes are the first step in the new generation of relationships between suppliers and buyers. This is the first step of probably many changes. This is a tremendous step for the whole industry."