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FMI Chief Sees Industry Mood Unsettled

The food distribution industry is caught in a period of uncertainty. The mood in the industry is fairly upbeat and optimistic, but everyone does share uncertainty about the future and state of the economy, Tim Hammonds, president and chief executive officer of the Food Marketing Institute here, told SN prior to the 2008 FMI Show, May 4-7, in Las Vegas. The economy, food cost inflation,

ARLINGTON, Va. — The food distribution industry is caught in a period of uncertainty.

“The mood in the industry is fairly upbeat and optimistic, but everyone does share uncertainty about the future and state of the economy,” Tim Hammonds, president and chief executive officer of the Food Marketing Institute here, told SN prior to the 2008 FMI Show, May 4-7, in Las Vegas.

The economy, food cost inflation, the economic stimulus package and the upcoming presidential election, which allows a short window to advance pro-industry bills such as the Credit Card Fair Fee Act of 2008 toward passage before the year's end, are clouding industry momentum.

One certainty is that FMI will run its annual trade show in Las Vegas at the Mandalay Bay Resort & Casino, after holding the event for 23 years in Chicago.

FMI has struggled over the last three years to invigorate its annual showcase, which has suffered in attendance and exhibitor space due to industry consolidation and rising costs. After failed negotiations in 2005 to sell the show to dmg world media, an exhibition and publishing company, FMI decided to maintain control of the show and announced last year it would relocate to Las Vegas and break into two formats — a trade show and an educational forum — that would take place every other year.

With the move to Las Vegas, FMI lost three organizations that co-located with FMI — All Things Organic, the Fancy Food Show and the U.S. Food Export Showcase. Organizers of those shows decided to stay in Chicago at McCormick Place. They will run their events next week, April 26-29, under the Global Food & Style Expo umbrella.

Hammonds said this year's Las Vegas show will be similar in scope to previous trade shows in Chicago. The event will incorporate Marketechnics, and continue to co-locate with the United Fresh Produce Association and the Supermarket Pharmacy Conference.

The big change comes next year, he said, with the Future Connect Leadership Forum, May 4-6, 2009, in Dallas. The program for that event, which addresses a management talent gap the industry confronts caused by demographic shifts, is posted on FMI's website:

While Hammonds had no preliminary registration figures to share, he said Las Vegas was generating excitement and interest. He touted Las Vegas for its new store formats as an attraction for FMI members planning to attend the show, which kicks off Sunday afternoon, May 4.

While it remains to be seen if the economic downturn will impact FMI Show attendance, the economy will be a major topic during the FMI Speaks presentation on Monday, May 5, which Hammonds will host.

“The important thing to realize in our industry is that with thin margins, small changes can make big differences. So everyone is watching their costs very carefully,” he said.

Hammonds suggested that the $152 billion Economic Stimulus Act, while a move in the right direction, may not go far enough to achieve the necessary boost to consumer spending.

“The problem with a package of this kind is that it is temporary, and people know that it is temporary. It doesn't shift consumer behavior as much as if it were permanent.”

He anticipates a second government stimulus will be needed, especially if weakness in the housing market continues.

About $45 billion of the stimulus package can be used by businesses to invest in growth and technology. “It will help particularly smaller retailers that need to invest in upgrading their equipment and software packages,” Hammonds said.

Rising inflation also is impacting consumer confidence. Hammonds pointed out that unlike past inflationary periods, this one is directly related to the food supply. “We see wheat, corn and soybeans spiking in price, and that will ripple through every commodity sold in supermarkets, whether it is packaged goods or basic commodities.”

He doesn't expect commodity price increases, fueled by increased demand for food from developing nations and by rising oil prices, to stabilize any time soon. Some economists are predicting the biggest food-cost inflation pass-through in history.

“I don't think anyone in the industry wants to have to pass through costs to consumers unless they absolutely have to. But clearly, economists throughout the industry are forecasting it is going to happen,” Hammonds noted.

As the industry tries to get a grip on the economy and rising food costs, the upcoming presidential and congressional elections may also be of concern.

“There is a whole range of tax issues we will have to watch very carefully depending upon the election outcome both in the administration and on the Hill. Clearly, if the White House administration should go Democratic, there would be every incentive to let the current president's tax package expire,” said Hammonds.

That would most likely mean higher taxes for small businesses that file an individual tax form and a permanent return of the estate tax, he said.

Under a Democrat-controlled administration and Congress, Hammonds also expects an attempt to eliminate secret ballot elections as a requirement in voting to unionize a company. The Employee Free Choice Act, better known as the Card Check Bill, is supported by organized labor, and would replace secret ballot elections with signed cards authorizing union membership. Democratic candidates for president support the act, which stalled in the Senate last year.

“It is important to note these [labor laws] originally were put in place to protect workers and give them the same secret ballot right we have when we go into the voting booth. We are watching this carefully and preparing for what might be a difficult fight next year.”

Of immediate concern, FMI is supporting new legislation, the Credit Card Fair Fee Act of 2008, which would establish a committee of merchants, credit card companies and banks to negotiate fair and reasonable credit card transaction fees. If the committee can't agree on an equitable fee, the decision would go to binding arbitration by a panel of experts.

As the situation currently stands, the food industry considers rising interchange fees excessive beyond the actual cost of the service and a reasonable profit. The fees burden consumers because, according to FMI, card company rules effectively force retailers to build the fees into the price of all goods and services.

According to the Washington, D.C.-based Merchants Payment Coalition, credit card companies received more than $36 billion in interchange fees in 2008, an increase of 17% from 2005.

Both FMI and the National Grocers Association dedicated a day in Washington this month to drum up bipartisan support for the bill, which was introduced in the House.

“We are working hard in the Senate to get Republican co-sponsors for the bill so it will be truly a bipartisan effort. We do think we will be successful in getting a companion bill in the Senate this year, and we have a good opportunity to continue to move toward a resolution,” Hammonds said.

The high cost of interchange fees are partially related to retail crime, another issue FMI wants to see action on. The processing fees are said to not only cover the cost of transactions but also the risk to banks of nonpayment or fraud. That risk recently became reality at Hannaford Bros., which exposed 4.2 million credit and debit card numbers, resulting in 1,800 cases of reported fraud.

“I would expect the financial community and credit card companies will be working very hard to put procedures in place that could protect from this happening in the future. Hannaford was in compliance with current guidelines for security. This attack shows there are people who are very innovative, and this will probably require new guidelines on the part of the financial industry,” Hammonds said.

FMI is supporting a movement to get organized retail crime made a federal felony rather than a petty shoplifting offense. “These are not casual shoplifters. They are organized gangs that sweep shelves, and [then] market goods at flea markets or through the Internet. There is a lot of recognition built on the Hill that this is a big problem that needs to be addressed, so we are making progress, but it is a matter of timing,” said Hammonds.

Food safety is also a top FMI concern. Consumer confidence took a step back immediately after the Hallmark/Westland Meat Packing Co. recall of 143 million pounds of ground beef earlier this year, said Hammonds. “The impact on the food industry was greater because as the agencies extended the beef recall to ingredients used in packaged goods, supermarkets began withdrawing products and publicizing it.”

With consumer confidence in food safety shaken, FMI began developing an online recall program to improve communication between manufacturers and retailers and strengthen the reliability of the food safety chain. FMI is partnering with GS1, the supply chain standards organization, to develop the electronic food recall portal that is expected to be unveiled at the FMI Show. “We think there needs to be a uniform system to let everyone know about food recalls at the same time,” said Hammonds.

According to Hammonds, FMI is in active discussions with senators and their staff members about getting new food safety legislation introduced this year.

However, in an election year, time is of the essence, he said, and it remains uncertain how much can get accomplished before the end of the year. The 2007 Farm Bill remains in limbo, and with it mandatory country-of-origin-labeling regulations for produce and meat, which are supposed to go into effect on Sept. 30.