"Wal-Mart: America's Largest Locavore Grocer"... Wait... What?

According to a piece today on Reuters, Wal-Mart Stores Inc. has announced plans to double its commitment to sourcing its produce from smaller farms and ones more local to their retail locations.

Yes, that Wal-Mart...

"Welcome to Wal-Mart, I'm the Backbone
 of America"

The company claims that this change to their produce inventory will constitute a $1 billion increase to their sales of foods from "emerging markets."

By utilizing their enormous presence in the American retail market to... err... market, and sell all this locally-grown produce, the big-box behemoth claims that they can carve out 9% of market share for locally-grown 'fruits and veggies.'

That's NINE PERCENT of the ENTIRE U.S. produce market.

And by doing this, the company estimates that they can create a 10-15% rise in annual income for their new vendors, independent and other small farmers.

So... let's tick these off on our virtual fingers, shall we? Better quality produce... from local farms... that will reach a staggering percentage of possible consumers and potentially revolutionize the toxic American diet... while helping farmers?

Wow.

There is so much "do-goodery" represented on our digital fingertips that our avatar is blushing.*

And it's all due to the good people at... Wal-Mart.

We know, it feels weird.

So, why is the perceived Deathstar of Small Businesses making what seems to be an altruistic economic decision?

Why is the least-trusted corporation on the globe spending capital to research and develop a plan that provides better food for more people while making more money for the most honored of nationalistic, hardworking archetypes; the independent American Farmer?

And what does it say about our culture that the descendants of "Darth Walton" are now extending their profit minded tentacles, and offering the consuming public a freshly-picked, shiny, organic, small-batch nectarine... at an affordable price?

Well, maybe it's time to consider the option that this new approach is also good business.

And we here "The Biz" don't mean that as a slight to Wal-Mart. Any company that makes more than $405 billion in revenue annually, as the company made last year (a 7% increase from 2008), and can attribute more than half of that revenue domestically to grocery sales (51%), can continue to go about business as usual without making any significant changes to their business model.

Instead of going out to small, family farms and becoming a market conduit, bringing a huge portion of the American populace a higher level of nutritious produce, Wal-Mart could have continued to shell for poor quality, mass-produced swill that they buy at wholesale discounts from faceless "AgroGiants,"and still made hundreds of billions of dollars.

But, like it or not (and frankly, why would you not?), Wal-Mart has made this five-year commitment and it's very, very impressive.

It almost makes you hope they can make it work for their bottom line...

Hey, we said "almost."

* - (ed note- we don't actaully have an avatar... yet)

Enjoy that Delicious Steak While You Can... Still Afford it

Because as the price of corn surges higher and higher on the commodities markets, some publications have begun their watch of how it might affect cattle futures, and inevitably the cost of our steaks.

And corn isn’t just inching up slowly, today’s WSJ not only refers to a two year high of $5.79 a bushel (a figure that hit the limits allowed by The Chicago Board of Trade), it also shows that corn has shown 17% rise in price over the last 3 days.


The piece even goes so far as to quote an agricultural analyst who makes the claim that he “can smell $6 now.”

While the cause and effect between corn and cattle prices can be sometimes be viewed as not having immediate reciprocal impact, the signs in this case are already apparent.

A report on Bloomberg this Monday quoted a cattle futures analyst who reported data demonstrating that the U.S. annual per-capita beef supply for 2011 might plummet to a 35 year low of 46.8 pounds.

Any slump, or surge for that matter, in American beef production will have influence on retail prices, but a nosedive this dramatic will have more immediately negative impact on beef’s affordability for the average American consumer.

In fact, the very same report on Bloomberg foresees such a swift swelling in the cost of American beef that the rise in its value might outpace the rate of inflation on all U.S. food combined.

Unfortunately, this will be a bigger story in the months and years to come, as cattle aren’t commodities that can be discovered or harvested early. American cattle takes an average of three years to mature and even longer in the case of more “gourmet” strains of beef, like grass-fed for example.

And as corn is a major feeding crop for farm animals nationwide, we can expect to see the costs of other meats rise as well.

Bacon prices, for instance, are the highest they’ve been since the Carter Administration as the cost of feeding pigs, and thus maintaining equilibrium in the market for pork belly continues to be more and more expensive.

So it looks like “that place” you love with that “super cheap bacon cheeseburger” might be changing price points sooner than later…so can we here at “The Biz” interest you all in any genetically-altered Salmon while you wait? They’re corn free you know…

(editor's note) We here at “The Gastro Biz” are hot on the trails of some quotes from NYC restaurateurs to see what they’re seeing on the wholesale side of things and will update when we get one or two.

And Now for Something Completely Different...

After recently reading Dan Ariely's wonderful book Predictably Irrational, I decided to conduct an experiment of my own to see how people will, if given the chance, act irrationally in regards to their own best interest when making a decision.

The Hypothesis

As a formerly employed, commuting New Yorker, I am intimately familiar with the often convoluted, and always unsatisfactory, ways through which employers procure MTA Metrocards for their employees. In fact, my most recent employer outsourced their procurement operation to a company that would, if so authorized, garnish my pre-tax earnings to hold in escrow until I purchased my own monthly $89 Metrocard and submitted a receipt and voucher for reimbursement of my own pre-tax salary.

Despite the seeming simplicity of this operation, I often found myself in consternated frustration at having to “jump through hoops” on a monthly basis to receive my own money after filling out irksome paperwork. And doing it all just to save myself the taxes on $86 a month. In the end I often found myself leaving the money in my “Transit Account,” where it would just sit, doing nothing until I claimed it.

Effectively, I was often leaving my own money on the proverbial table despite being enrolled in a perfectly functional procurement program.

After reading Dan Ariely’s experiments, and seeing that the MTA will again increase the cost of a monthly Metrocard (this time to $104), I deduced an experiment of my own that I believed would demonstrate that other commuters will also fail to protect their own savings if given similarly convoluted choices, especially if one of them seems to take money “up front.”

Having learned in my Foundations of Finance class that “money paid out in the future is worth less than money paid today,” I created a scenario in which I acted as imaginary employer that offers employees two different options for procurement of their monthly Metrocards for a the week pre-dating the rise in cost from $89 to $104. One option was created to simulate “taking” the employees money up front, while the other was created to seem like a more gradual, less punitive garnishing of wages.

My belief was that given the choice, employees would choose the later, less-valuable option more often than the better, first option.

The Parameters

Option #1, “Pay Now”- My “company” will sell the employee a packet of six, monthly Metrocards at their face value of $534 before taxes. This amount will be garnished from your wages immediately.

The total savings for this option are $133.79 ($90 saved in avoiding Metrocard fare hike and $43.79 in saved sales tax)

Option #2, “Pay Later”- My “company” will garnish $104 in pre-tax wages, and provide a monthly Metrocard on the first Monday of every month. However, to offset the effect of the fare hike, we will add a taxable bonus of $15 to the employee’s paycheck at the end of every monthly pay cycle.

The savings in this option are approximately $20.38(Although $55.38 is saved in sales tax, roughly $35 would be paid in income taxes on the total of $90 in bonus). 

The Experiment

I used 10 friends, whom I know to be employed, commuting, New York City residents, as a sample group and pitched them the two options verbally.

I did not allow them to take notes, as I was interested in their “gut decision” to the choices presented.

After they considered the options for 2 minutes, I laid out the options on two index cards, withholding the actual amounts of savings that they actually provided, for 30 seconds. I then gave them another minute to consider the options.

After the time was up, I asked them to write their choices anonymously on scraps of paper and pass them back.

I then tallied the results.

The Results

Seven of the test subjects chose Option 1 while only three chose Option 2.

Frankly, I was pleased that I was able to prove my hypothesis, but I remain somewhat baffled by the margin on which I was able to do so.

I was also rather surprised by how much, in the aggregate, was lost in potential savings by the 10 respondents.

Should McDonald's Be Rooting for HIGHER Unemployment?

A few month back, The Washington Post published an article that linked a dip in fast-food breakfast sales to rising unemployment. The argument was made that with fewer people making morning commutes to their jobs, fewer and fewer breakfasts were being purchased at "drive-thru" windows.

While the argument holds some water in terms of data relating to breakfast purchases, the overall numbers, especially for McDonald's, are much less correlative. 

Since the article was published in February the US unemployment rate has, according to numbers published by the Bureau of Labor, stayed almost entirely consistent (9.7% in February, 9.6% in September) but McDonald's has reported two very strong quarters of earnings.

So, while the numbers in the mornings might be down, could an unstable economy and a high rate of unemployment be good "Mickey D's?"

Jeremy Baker, a finance manager at Websense in San Diego, says that it's hard to see how the company couldn't be somewhat buoyed by customers needs to 'cut-back,' "[McDonald's] is often times the most convenient, least expensive and most kid-friendly food option for most people."


This combination of factors viewed through the optic of stagnating recovery and stalled job growth could mean big business for McDonald's.

With more people trying to save, more potential diners should flow through the 'Golden Arches.'

"They're not going anywhere anytime soon," Baker says of the future outlook for Ronald & Co.

If only the same could be said for the unemployed.

Chocolate Chess Games: Nestle ups the ante in India after Kraft acquires Cadbury

With Kraft foods recent acquisition of English chocolate giant Cadbury, Nestle SA is moving quickly to improve profits in what is currently their most profitable market.

Cadbury's British pedigree and strong presence in India, both historically and financially, signify a threat to Nestle, but the Swiss conglomerate apparently has a plan in place to ameliorate that empirical significance.

The Times is reporting that Nestle has announced plans to create and R&D facility on India where it will experiment with local flavors towards the goal of creating products that will establish their already strong sales position in one of the globe's most populous nations. 

According to the The Times, Nestle saw a 20% rise in profits throughout their Indian market last year and openly estimates that, over the next 10 years, 45% of their sales will be made in "emerging markets" like India.

Interestingly, Nestle overall is reporting an 18% rise in earnings (EBIT) from last year in the half-yearly earnings report that they released this August.

While it woud be a jump in reasoning to assume that India alone created the almost $1.2 billion difference in earnings for Nestle from last year to this one, it is not so hard to posit that Kraft's purchase of Cadbury has spurred a sudden need for Nestle to reinvest in a market that has provided sales figures of such numeric significance.

We can only hope that this bold R&D move by Nestle will provide American shoppers with a mass-marketed, microwaveable Chicken Tikka Masala, basmati rice and Hot chocolate meal available at supermarkets in the near future.

Or do we?

UPDATE: "Fish Wars" Episode II: Attack of the Salmon Clones

As the FDA's hearings on AquaBounty's genetically modified fish kicked into high gear this week, new and more vociferous arguments were made on both sides of the issue.
CNN.com's "Eatocracy" blog (which has been doing the best reporting on this story) has a story positing the argument from both sides of the scientific perspective.
While many of the arguments discussed in the story that are bing made against AquaBounty's case are presented in our previous post, some scientists make the case that the inherent containment of farming the new strain will prevent any future damage to the eco-system. It's an intriguing point that will have to be explored by the FDA, who plan to announce their ruling in a matter of weeks.

From our perspective though, the question remained as to what the effect would be at restaurants and supermarkets should the FDA approve AquaBounty's request or allow the EU to begin marketing it's genetically altered bluefin internationally.
So, last week we spoke to a local chef, and future host of her own show on The Food Network, Anne Thornton (who admittedly is our cousin) about her take on serving any version of genetically altered fish. As bluefin is a much more hot-button topic amongst NTC restaurants due to its higher marketability, the chef was very keen to discuss it;

"A chef is only as good as her/his ingredients, so I would only use the highest quality ingredients in my food. Farm raised blue fin tuna have been pumped full of hormones so that they reproduce at astronomical levels. I don't use fish, fowl or meat that has been pumped full of hormones or antibiotics. Blue fin is not an unexchangeable good. I think that the food industry should respect the fact that Bluefin in the wild are endangered, and create a demand  for other fish that are similar in taste and texture and can be found in abundance such as Atlantic Char."

Her take is clearly akin to the one voiced by Rick Moonen on salmon last week and goes a step further by identifying other market-worthy fish that would alleviate the burden on North Atlantic salmon and tuna.
So now we have to ask the question, who has the more potent ability to establish new trends in retail "fishmongering" and commercial fishing; chefs and restauranteurs or the FDA?
I guess we'll find out soon...

(Ed note; Ms. Thornton asked that we also mention her TV show "Dessert First with Anne Thornton" debuts Sunday, October 24th at noon on The Food Network. So... check your local times and listings)

New Advances in Genetics and Farming Might Give Atlantic Fish Like Tuna the Actual "Blues"

In late August, Scientists for The EU announced that an experiment, conducted with the Spanish Institute of Oceanography, into breeding Atlantic bluefin tuna in captivity had yielded the successful creation of a genetically modified species.

This new advancement makes bluefin easier to produce, breed to size and cheaper at market allowing the new strain of bluefin to be bigger and cheaper than the popular tuna we know. 


As most of bluefin's appeal has gone beyond its taste to the its relative scarcity and the resulting cachet of its high price both at market an on tables in fine-dining restaurants, it was inevitable that this breakthrough would meet with some resistance.


In reality, The EU's announcement has been a large metaphorical stone thrown into the waters of a scientific and gastronomic argument that is already rippling with growing negativity towards farmed, and often genetically-altered, fish.


A few weeks ago, The New York Times devoted a portion of The Week in Review to an explication of what the ability to farm bluefin will do to the environmental sustainability of commercial fishing throughout the Atlantic. 


And it's not good...


Environmentalists argue that farming bluefin is not only deeply harmful to the ecology of fishing in the ocean but also harmful to the quality of the farmed fish as well. As bluefin will be ranched with other popular species that require different patterns of movement and temperatures, health factors like waste and overfeeding could arise throughout a plethora of farmed fish species.


And bluefin isn't alone. 


A small company named AquaBounty Technologies Inc. based in Waltham, Ma is currently waiting for approval from the Food and Drug Administration to sell their genetically altered Atlantic Salmon species to market. 


AquaBounty's fish has a shorter, multi-seasonal growth period and would be a cheaper alternative at market to salmon that is fished for in the less reliable North Atlantic.


Pressure has been on The FDA from both sides of the decision and the argument to AquaBounty's approval has a lot in common with what is being said against the new species of bluefin.

An instance of the opposition from the restaurant world is celebrity chef Rick Moonen, an authority on seafood ecology in the US and chef/owner of his own seafood restaurant in Las Vegas, who has written an excoriation of AquaBounty and the FDA for cnn.com's "eatocracy" blog. 


Moonen takes an almost vitriolic stance against the FDA's apparent approval of AquaBounty's Atlantic salmon, and even terms the new species "Frankenfish," while warning strongly against the appeal of cost and accelerated growth rate of genetically modified fish;

"In those conditions it becomes necessary to use antibiotics on an already unstable fish in order to control bacterial infections and other diseases -- and to protect the investment of carnivorous fish farming. The byproducts of all this -- a wonderful stew of feces, unconsumed fish food and dead fish called, sweetly, "effluent" -- create a suffocating blanket that spreads across the ocean floor, resulting in a massive dead zone surrounding the farming area. It kills clams, oysters, eel grasses -- where young fish feed and grow -- and more."

Moonen's opinions are echoed throughout the restaurant and retail food industries. 


Most recently, Whole Foods Markets unveiled a color-coded "Sustainability Rating System" for every species of fish that is offered in their seafood sections. Species in the "Red" category are, according to a company press release, described as "suffering from overfishing, or... current fishing methods (that) harm other marine life or habitats." 


Whole Foods is also hoping to use their new rating system towards achieving their (concurrently announced) goal of not having any "Red Rated" fish for offer by Earth Day 2013. 


As the major criticisms of both AquaBounty and The EU's genetic modification programs seem to fit perfectly in Whole Food's "Red Rating" criteria, it appears that the FDA will have a lot of decisions to make before April 22nd, 2013 for Whole Foods and chefs like Moonen to see a turn for the better.

A Looming War Over Yogurt?

According to a story in today's Minneapolis St. Paul Business Journal (it's also been picked up by the AP), General Mills is prepared to fight hard over their right to license the Yoplait yogurt brand that its had the rights to since 1977.
A French company named Sodima, that actually owns and produces Yoplait, is attempting to use what they believe is an "out-clause" in their contract with General Mills and terminate their relationship, effectively ending the Minneapolis-based food giant's ability to market and sell the popular yogurt.
While General Mills will apparently petition with the SEC to hold up the requested divorce, I think it's fair to expect a much lower profile for Yoplait on supermarket shelves in the coming weeks as conglomerates like General Mills have strong ties and agreements with food retailers that allow their brands to be presented more prominently. Without any stake in Yoplait's future "Point of Purchase" sales, General Mills will more than likely allow the yogurt to be moved out of prime eye-lines on shelves throughout the country (if Sodima even finds a way to distribute it all).
It's more than conceivable that devotees of "French Yogurt" will have to look harder for their fix.
Let's just hope the Greeks don't get as combative as the French and pull Fage Yogurt from the coolers as well...
International intrigue indeed.

Welcome to The Gastro Business...

In the coming months we hope to use this space as a place to examine how socio-economic realities and business decisions in financial markets have causal effects, both large and small, on what we eat. Whether we shop for a meal to cook at home for ourselves or choose to have one placed on a table in front of us at a restaurant, our tastes and limitations of choice are being dictated to us by a subtle deluge of market forces that, at first glance, would seem entirely unrelated to the business of food.
Our palates, perceptions and pocketbooks are impacted daily by world events that could have occurred months, or even years, previously.
Or ones that occurred that morning.
By tracking these events and their effects, we can watch them seep inevitably onto our dinner tables from a much more informed perspective.
We hope you'll join us.
-The Editors

Welcome