WASHINGTON — A new era of retailer-manufacturer cooperation may be emerging as food distribution aligns with sectors on fronts where it is mutually beneficial to join forces.
That was the view of Cal Dooley, president and chief executive officer of the combined Grocery Manufacturers Association/Food Products Association, which merged in January when Dooley succeeded C. Manly Molpus as the head of the food, beverage and consumer products association here.
SN spoke with Dooley and Stephen Sibert, senior vice president of industry affairs, on the eve of the association's annual Executive Conference, June 8-11, at the Greenbrier, White Sulphur Springs, W.Va. Both executives addressed a wide range of priorities for the organization, from bolstering consumer confidence in the food chain to sustainability projects that require joint partnerships with retailers.
Today's retailer-supplier relationship is positive, said Dooley. “A lot of it is a reflection of a conversion that is occurring in many segments of the industry,” he explained.
Retailers moving into manufacturing with store brands and private label is one conversion. “A number of retailers are getting increasingly involved in manufacturing products. When they move in that direction, then a lot of issues and challenges they face become identical to those of the manufacturer. So we are seeing greater opportunities to partner and collaborate with retailers that are adopting business models that have an increasing focus on manufacturing,” Dooley said.
A strategy session during the final day of the conference will focus on the role that brands play within the private-label arena. A study conducted by McKinsey & Co. will be released on the subject. Don McGeorge, president and chief operating officer, Kroger Co., Cincinnati, will be among the panelists in a discussion on the new world of brands and how best to compete.
“If we had this conversation two years ago,” said Sibert, “the dialogue would have been the sale of a private-label product came at the expense of a national brand. I see our members becoming self-aware that they have to coexist with a consolidated retail environment today. In order to maintain profitability and health, you have to have a private-label program. We are trying to collaborate more in how do we fit with retailers' direction.”
Sibert expects to see stepped-up private-label execution, especially since Britain's Tesco, known for its exemplary private-label program, has entered the United States with the company's Fresh & Easy format. “National brands have to figure out how they can coexist and grow the entire category, and where they can take their share from that growth,” he added.
DELVING INTO SUSTAINABILITY
The demand for a sustainable environment has become a top-priority item in food distribution. “Sustainability is one of our highest priorities and strategic areas of focus, and it is a long-term initiative,” said Dooley.
The association has commissioned Deloitte Consulting to do a best-practice study: Industry Review of Practices in Sustainability. The first phase of the study, which examines 26 retailers in various channels from Wal-Mart to Tesco on their sustainability projects, will be released at the conference. In addition, Linda Dillman, executive vice president of risk management, benefits and sustainability, Wal-Mart Stores, Bentonville, Ark., will discuss Wal-Mart's sustainability commitment, and Monsanto, Heineken and Chep, the pallet service company, will present case studies on their sustainability projects.
Phase two of the study will focus on sustainability as it relates to packaging, energy and water. GMA/FPA will work in conjunction with other associations, including Food Marketing Institute, on this project, which will culminate in a GMA/FPA Sustainability Summit on Jan. 17-18, 2008. The summit will examine the impact environmental sustainability is having on the CPG industry. Leaders from all sectors, including academic, state and government officials, will gather in Washington to discuss key topics related to sustainability that have long-term implications.
“We are very linked to FMI as it relates to this project,” said Sibert.
Dooley added, “It will allow us to be more constructively engaged with our retail partners in making sure we are working in a collaborative fashion.” The project attempts to ensure that the sustainable mandates which involve manufacturers that retailers are considering are well conceived and science-based.
Food safety is another big concern of all stakeholders. GMA/FPA is an organizer of the Coalition for a Stronger FDA and is campaigning for more funding to increase the U.S. Food and Drug Administration's capacity to monitor food safety.
“Unfortunately, over the past decade we've seen a reduction in the capacity of FDA to respond to some of our food safety challenges,” said Dooley, who noted that increases of food imports have strained the agency.
The association is backing a request made by Sen. Tom Harkin, D-Iowa, for the Office of Inspectors General of the Department of Health and Human Services and the U.S. Department of Agriculture to conduct a study on the food safety network and recommend changes aimed at strengthening food safety measures.
“Our policy is to be committed and engaged in a discussion and process to determine what are the regulatory constructs and the policies that are needed to enhance food safety. I think it is premature to determine that you need a single food agency, but we are committed to working with the leadership in Congress that has jurisdiction over this issue,” Dooley said.
The CPG industry's efforts in health and wellness is a consumer issue that aligns with that of retailers' health-and-wellness initiatives. Dooley said promoting MyPyramid, as a joint effort with FMI, has helped consumers make healthier food choices. “This is an area we are trying to work with our retail partners on as well,” he added.
The current health of the CPG industry is relatively good, said Dooley. Last year, sales rebounded from a flat 1.6% increase in 2005 to 2.5%, according to Information Resources Inc., Chicago. The growth, however, was reflected in rising gasoline, oil and sugar crop costs, which eventually resulted in higher retail prices.
“Growth in the CPG sector generally tracks the growth we are seeing in the economy. We've seen reports from member companies that are showing significant growth, exceeding some of the overall growth in the economy,” Dooley added.
He said the industry is concerned that rising commodity costs will impact food prices and change consumer purchasing and behavior.
“We are already seeing an increase in the cost of food products in the first quarter, and a recent report by Merrill Lynch concluded that in the first three months, we saw an annualized increase in food prices of over 7%. That is significant if you look at it from a historical perspective. We are very concerned that this is just the beginning of increases in food and beverage prices as a result of a host of factors.”
At the root of the problem is what to do about rising energy costs. GMA/FPA wants an energy bill that minimizes market distortion as it pertains to biofuels, so that corn being used to make ethanol is not used at the expanse of a bushel of corn for food production, said Dooley.
“This is something that affects not only the cost of energy that is an important issue to our members, but also has significant the overall growth in the economy,” Dooley added.
He said the industry is concerned that rising commodity costs will impact food prices and change consumer purchasing and behavior.
“We are already seeing an increase in the cost of food products in the first quarter, and a recent report by Merrill Lynch concluded that in the first three months, we saw an annualized increase in food prices of over 7%. That is significant if you look at it from a historical perspective. We are very concerned that this is just the beginning of increases in food and beverage prices as a result of a host of factors.”
At the root of the problem is what to do about rising energy costs. GMA/FPA wants an energy bill that minimizes market distortion as it pertains to biofuels, so that corn being used to make ethanol is not used at the expanse of a bushel of corn for food production, said Dooley.
“This is something that affects not only the cost of energy that is an important issue to our members, but also has significant impact on a lot of the commodities our food and beverage companies use for the production of their products.”
CPG companies' continued growth will depend upon free trade in a global marketplace. Dooley said the association generally supports bilateral trade agreements with Peru, Panama and Colombia. It is waiting for the outcome of negotiations with South Korea before endorsing that agreement. Those agreements are expected to be voted on by Congress this year.
GMA/FPA is also working to ensure that the reauthorization of the 2007 Farm Bill is moving in a more market-oriented direction, said Dooley.
“This is important so our members have access to commodities priced more as a function of the marketplace. Also, the reform of the Farm Bill is very important to our ability to see the U.S. maximize its leadership in achieving [free] trade in particular with the ongoing Doha negotiations.”
Smooth Sailing
WASHINGTON — It was at last year's annual Executive Conference that the Grocery Manufacturers Association board voted to merge with the Food Products Association. The merger became a reality on Jan. 1, 2007, when Cal Dooley, who was head of FPA, took over at the helm of the merged associations. Next year the association will drop the FPA acronym and will be known simply as GMA — the association of food, beverage and consumer products companies.
SN asked Dooley how the merger has gone and if there have been any surprises along the way.
“I am pleased with the transition to GMA/FPA. In working with member companies, we've been successful in defining our strategic areas of focus, which are our priority issues that determine how we are investing in the capacity of the association. We've tried to identify those issues and subject areas that are of greatest importance to the maximum number of our members, going across the range of our membership from food [and] beverage to consumer products companies. Deepest among those priorities is consumer confidence, whether branded or private label. It is essential our members maintain the confidence of their consumers. A lot of focus also is on product safety issues, which are of very high importance.”
Dooley said the transition went smoothly because of the support from members of both organizations. “We were able to assemble a senior staff and staff at large that had great balance between former FPA staff and GMA staff.”
— C.V.
