From
the Most Respected Name in Foodservice AnalysisCharles S. Iroselti, Ph.D.
The Charles S. Iroselti Report
From
the Most Respected Name in Foodservice Analysis
Charles S. Iroselti, Ph.D.
United We Stand
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Dr. Iroselti passed away peacefully on November 25th after a long illness. This page will be removed after a respectful period of time.
June 15, 2004
I was rather disappointed by the column posted by Mr. Griswald on June 8, 2004. I posted an email on June 2, 2004 from a reader who was concerned that Mr. Griswald had written a piece about the Trent Lott / Christopher Dodd controversy roughly two weeks after I had written a similar piece. The reader indicated that Mr. Griswald had “completely re-wrote” the column and that Mr. Griswald “Apparently… does not read your column”.
The reader asked for my opinion of this event. My simple reply was “his loss” – meaning, if Mr. Griswald had not read my column that it was unfortunate for him.
In his June 8, 2004 column, Mr. Griswald has decided to twist this into some kind of a personal attack. My apologies to Mr. Griswald if he misinterpreted my comments or their intention. The fact that Mr. Griswald felt strong enough about the subject to also comment on it could open more eyes to the hypocrisy of the media and others in this country.
However, I must take exception to Mr. Griswald’s extension of my comments to somehow imply that I had called him a “loser”. In my opinion, that kind of hyperbole is ridiculous. Upon further reading of Mr. Griswald’s commentary over the previous year, I have noticed that he has applied this level of exaggeration to comments made by Mr. Haamiame as well.
At least I am in good company.
My advice to you Mr. Griswald is ..lighten up. I pledge that regardless of what is written to me or about me in the future I will refrain from ever mentioning your name in either my column or my email responses again. This will insure that you will not misinterpret my comments nor ever believe I am personally attacking you. And please let me once again apologize if you felt you were being attacked or maligned in any way.
June 7, 2004
Another Year… Another Speech
More hints to the future of US Foodservice
Charles S. Iroselti
Another annual shareholders meeting has brought more comments from Anders Moberg (CEO, Ahold) about US Foodservice and the future of the embattled foodservice distributor.
Instead of reviewing the entire speech, here is the text specific to US Foodservice:
“The road to recovery has a third important component: recovering the value of U.S. Foodservice. We have communicated a three-step plan to be done over 18-24 months, focused on putting the basics in place. Rigorous internal control and strong corporate governance were the main focus points in 2003.
We have now started work on the next phase: restoring profitability and cash flow. We are focused on driving core capabilities and business performance.
Some of the highlights are:
* implementing our corporate SIS promotional allowance tracking
system this year;
* building the organization by installing a strong leadership and
financial team and restructuring our regional field operations;
* developing a plan to integrate our IT systems - called US Fast -
to be implemented over a 18 month period; and
* renegotiating with about 125 vendors to restore lost procurement
leverage.
We are still targeting in 2004 - a positive EBITA for US Foodservice, excluding the impact of any restructuring or unusual one-time items. And no later than 2006, our target for U.S. Foodservice is to exceed its 2002 adjusted EBITA margin.”
Mr. Moberg has set the tone for the future of US Foodservice. Ahold will not be selling the company…yet. Moberg very clearly indicates that recovery of the value of the distributor is paramount. Why? Because this is a company that is now estimated to be worth less than 10% of what Ahold paid for it and Moberg has to get back as much value as he can before he unloads it.
And don’t be mistaken – he is working as hard as he can to unload it as quickly as he can. The “bottom fishers” (turnaround specialists like CDR) have made their offers for the company and Ahold, by financial necessity, is stuck attempting to rehabilitate the ailing distributor. Their tenuous financial position would not allow them to take that massive a loss on US Foodservice or they would have dumped it over a year ago and gone back to what they do best – supermarkets.
Anders Moberg is doing the right thing. He noted that FY2003 was spent “putting rigorous internal control and strong corporate governance in place”. This was an obvious and wise first step – we all know the financial shenanigans that were occurring at US Foodservice and even the weakest of leaders would have made this their first step to restore the faith of shareholders that Ahold was taking control of the dishonest division.
Steps to recovery
It is sad to see that MIS and system upgrades are portrayed as a huge part of the turnaround effort at US Foodservice (2 of four noted by Moberg)– insiders have told me the of the millions of dollars already spent on these endeavors in the past. Obviously, these are being revamped to guard against the rampant fraud committed under Mr. Miller’s regime. One could speculate that the previous upgrades had holes built into the system to allow for that type of behavior – a better assessment would be the controls to prevent it were not in place.
Renegotiation with, as Mr. Moberg said, “about 124 vendors” is minor and will not be a difficult task. Despite their poor performance, past dishonesty and recent loss of business, US Foodservice still controls the second largest piece of the foodservice pie and vendors will be anxious to “patch things up” so they can either regain or retain the business. If there is nothing more certain in this business it is the total lack of backbone of most foodservice manufacturers and processors.
The most revealing thing Moberg said about US Foodservice was:
“(we will be) building the organization by installing a strong leadership and financial team and restructuring our regional field operations”
It is not difficult to read between the lines. “Building a strong leadership and financial team” means changes in Upper Management in Columbia and around the country. Expect major changes in the next two years – and many of the changes will not be the people whom US Foodservice employees might expect. The key to survival for Upper Management will be listening to and implementing Ahold plans. Which means that even a manager that was successful in the past could be terminated if he or she is unwilling to play by the new rules. Ego has to be left at the door – and unfortunately that will be hard for many US Foodservice managers.
More important is his statement about “restructuring our regional field operations”. Look for US Foodservice to finally start closing many of their underperforming locations across the country and making accommodations to combine operations in regions where they have two or more distribution centers. For those who worried about layoffs before – believe me, you haven’t seen anything yet. This last year was the calm before the storm.
Ahold continues to attempt recovery after US Foodservice fraud and corruption almost destroyed them. The most important piece of information to come out of the speech? Moberg called the US Foodservice plan an “18-24 month plan”.
Now we know when Ahold will be putting US Foodservice on the market.
Look for US Foodservice to be sold sometime in 2007. The sale is a wise move for Ahold – who by then can afford to take a loss on the sale and go back to where they belong – retail – and leave the foodservice business for good. Who will purchase US Foodservice in 2007? That remains to be seen. That depends how well US Foodservice is able to change over the next 2-3 years. For Ahold’s sake, they are hoping the sale will be to a major player like Gordon Foodservice – and not a “bottom fisher” getting a fire sale price for damaged goods.
Charles S. Iroselti, Phd.
The Most respected name in foodservice distribution analysis
CSIroselti@foodservicerumors.com
June 1, 2004
AnGORE!
The angry Middle Aged ex-Vice President has truly “turned the corner”.
Charles S. Iroselti
If
nothing else, ex-Vice President Al Gore’s speech to the far Left Wing group
MoveOn PAC provides irrefutable evidence that Mr. Gore is not a
politician – no sane politician would ever say the things Gore said in his
speech Wednesday.
It also proves that Mr. Gore has no aspirations to once again seek the Presidency. If he did, the speech on Wednesday was possibly one of the biggest mistakes in political history.
Those of you who read my column on a regular basis know that I am not one for name calling of any kind. Regular readers know that I believe that public discourse and disagreement is the basis of our democracy and strengthens us as a country. In fact, when I looked back at all the columns I have written these many years I failed to find an instance when I ever made an inflammatory or rude comment about anyone (with the obvious exceptions of Saddam and Bin Laden).
Sadly, I will make an exception today.
Former Vice President Al Gore has truly “turned the corner”. In my opinion, the narrow loss in the 2000 Presidential race has affected this once respected politician so profoundly that he has become a bitter, foolish and possibly mentally ill man who has taken to spouting outrageous nonsense about the current administration in an ill-advised attempt to bring them down.
And what better audience that MoveOn PAC – a group of far left-wingers who blindly despise anyone who disagrees with their left wing agenda. This is the same group that have run advertisements comparing President Bush to Adolph Hitler – I’m quite sure that those brave Americans that will be at the World War II Memorial Dedication this weekend (I will be there with my brother Dalton - we both served in WWII) and especially the holocaust survivors are disgusted by such an outrageous and outlandish comparison.
And I’m willing to bet that you are as well.
That kind of rhetoric is simply unconscionable whether you compare President Bush or Former President Clinton to such an evil man. Politics aside – any group that would despise a President so much that they would make a comparison of this nature will ultimately do more harm than good for their cause. Such nonsense truly shows them for what they are – a group of fanatics who blindly hate their political opponents. Groups like MoveOn PAC are the epitome of ignorance (and trust me, there are plenty of right wing hate groups that deserve the same assessment).
Sadly for Gore, he is the one that will ultimately pay the price for this foolishness. What do we hear from Gore’s contemporaries about this speech? Dead silence. What do we hear from the Kerry campaign? Dead silence. What did we hear from far left wing Senators and Congressmen like Edward Kennedy? Silence. They are wise. They see Al Gore for what he is – a bitter and foolish washed up politician. They will continue to distance themselves from Gore as much as possible.
This outrageous speech has made Gore an anchor which the Democrat Party would be wise to avoid. As I said before, Gore has truly “turned the corner” – in a word, he’s nuts! He has made the majority of Americans – regardless of their opinion of President Bush – say “Thank Goodness for Florida.”
May 2, 2004, Sunday
Can You Say “Hypocrisy”?
Double Standards of the media and Senator Christopher Dodd
We all remember back in January of 2003 when Senator Trent Lott’s attempt to make a positive comment about Strom Thurmond on his 100th Birthday turned disastrous. In case you need reminding, here is what Lott said:
“When Strom Thurmond ran for president, we voted for him. We’re proud of it. And if the rest of the country had followed our lead, we wouldn’t have had all these problems for all these years, either.”
The firestorm that followed was unbelievable. You see, years ago Strom Thurmond was a white separatist – making him a political leper even though in later years he changed his view. Therefore, by saying anything positive about his past record, Lott became a political leper as well. At the time, I said:
“Talk about putting your foot into your mouth. What Senate Majority Leader Trent Lott meant as praise for a 100-year-old colleague has become akin to burning a cross on the front yard of America. At best, his comments were inappropriate and poorly thought out. At worst, well… the worst is what you see portrayed by the media. It’s a feeding frenzy and all the major networks have jumped into the fray. Is Lott a racist? That depends on your perspective. Some look at Lott’s Senate office and see numerous African Americans on his staff in key positions (and several in key positions since the 1980’s) – that would seem to indicate he is not a racist. Some look at Lott’s voting record against Affirmative Action and against a Martin Luther King Holiday and say that indicates he is a racist. “
I also said:
“Trent Lott has said he is a man of ideals – it is time for him to demonstrate that by stepping down from his leadership position. He has to know by now that this incident, as innocent as it may be, will not go away and will deter the mission he and his fellow Republicans embarked on before the November elections. Trent – I am sorry. I don’t believe you are a racist. But for the good of the party and all you believe in it is time to step down. You have said you are a man of ideals. Prove it.”
Of course Lott did prove it – he resigned his leadership position though many called for his resignation from Congress. Among those calling for his outright retirement from Congress was Senator Christopher Dodd.
Dodd goes after Lott
Among those leading the charge against Lott in early 2003 was Connecticut Senator Christopher Dodd (Democrat). Dodd’s statement was swift and to the point:
“If a Democrat had made [Lott’s] statements, we would have to call for his stepping aside, without any question whatsoever. If Tom Daschle or another Democratic leader were to have made similar statements, the reaction would have been very swift. I don’t think several hours would have gone by without there being an almost unanimous call for the leader to step aside.”
Sometimes saying things like that can come back and haunt you – such is the case for Senator Dodd. When Virginia Senator Robert Byrd cast his 17,000th vote last week in the Senate, a number of Senators came forward to make positive statements about the Senator. Like Thurmond, Byrd has a checkered past – but much worse than Thurmond’s ever was. You see. Byrd was at one time a Leader of the Klu Klux Klan – unlike Thurmond who called for separation of the races, Byrd called for the destruction of African Americans. But of course, Byrd has now changed just as Thurmond changed (though I must say that his interview 10 years ago where he used the “N” word wasn’t especially comforting). Thurmond and Byrd were cut from the same cloth – except Byrd’s past was significantly worse than Thurmond’s.
On the occasion of the vote, Dodd came forward and made the following statement:
“He (Byrd) would have been in the leadership crafting this Constitution. He would have been right at the great moments of international threat we faced in the 20th century. You would have been right at the founding of this country, right during the Civil War. I cannot think of a single moment in this nation’s 220-plus year history where [Robert Byrd] would not have been a valuable asset to this country.”
Like Lott, Dodd was simply trying to pay tribute to a colleague. Like Lott, Dodd is not a racist. Like Lott, he stuck his foot in his mouth.
So…where is the Trent Lott-like firestorm that Dodd said would come? It never has and probably never will. Why?
Double Standard
Is this the first you have heard about this? No surprise. The liberal press is not surprisingly silent about this “non event”. To be fair, Dodd is not at the leadership level Lott was so most would say he deserves a pass on his mistake – if he weren’t so outspoken about Trent Lott when he made a similar mistake!
The fact is Dodd is a hypocrite of the worst kind. Dodd is a political opportunist that attacks his political opponents over obviously innocent mistakes – hardly an attitude that encourages candid discourse of any kind. But when it comes time to live to the same standards, Dodd doesn’t play by the same rules. Dodd is a politician. Period. He is not looking out for the people of Connecticut – he is looking out for Christopher Dodd. Period.
Christopher Dodd has said he is a man of ideals but don’t look for him to step down from his leadership position in the Committee on Rules and Administration or any other positions he holds. Senator Dodd is an elitist. People like him believe that others should be held to a higher standard where innocent mistakes are unforgivable - but that he need not be held to those same standards. Don’t look for this coward to do anything except what is good for Christopher Dodd.
This attitude – this elitism - reminds me of another Democrat – William Jefferson Clinton. As we saw in Clinton’s second term, lying under oath is not a felony if committed by Liberal politicians.
What are the lessons to be learned from this?
1. People like Dodd think they are better than you and me.
2. People like Dodd hold themselves to a different, lesser standard than you and me.
3. This is not leadership – this is divisive politics of the worst kind.
4. If you live in Connecticut, Senator Dodd does not deserve your vote. We need Statesmen – not politicians.
Charles Iroselti
March 16, 2004, Tuesday
Greetings everyone. My apologies that it has taken so long to post any information - I'm afraid the University asked me to triple my class load. When you combine that with my duties putting together my nationally syndicated political column, it has been difficult to post items on a regular basis.
Also my apologies for not putting the political column on the site as well - I'm afraid the group that does the syndication was not happy with my giving columns away to a web site when newspapers across the country had to pay for them. Plus, I have come to the conclusion that political columns do not belong on the web site as lately there has been too much partisan political commentary poisoning the web site. Rhetoric that refers to President Bush as "Shrub" or Senator Kerry as "Ketchup" are ignorantly one sided and will never encourage honest intellectual debate. But to be frank, I have not had much to say lately because not much has been going on in the world of foodservice. I can however give you a few bits of commentary about the few things that have happened: Gordon Foodservice purchases Henry Lee - It will be interesting to see what happens with these two companies. Gordon of course is the undisputed leader of our industry - Sysco does not even come close to the dominance that this distributor has in the markets they service (note: a few Sysco houses like Robert Orr Sysco excluded). Many companies know what they should do but cannot execute on those plans - Gordon has been able to successfully execute the proper strategy for years, which is why they are truly the leader (if not the volume leader) in the industry. While Henry Lee has always been a leader in it's Florida market, it has used drastically different methods than Gordon to achieve this leadership - and has fallen off the leadership status for the last few years. It will be interesting to see if Gordon can successfully bring Henry Lee into their fold and make them emulate their model of success. All was quiet on the US Foodservice front - As Ahold goes through numerous major changes and gyrations, US Foodservice remains mostly unaffected at this point. A word from the wise to all those involved with US Foodservice - this is the calm before the storm. Ahold is changing, consolidating and selling strong and viable parts of its business first and is counting on the new leadership at US Foodservice to make that business saleable. As soon as they can, Ahold will dump US Foodservice and say goodbye. I say all was quiet as last week's press releases by Ahold that they will be pursuing ex-employees that unfairly earned bonus money broke the silence. While this outwardly does nothing to help grow this business (Wall Street will not be impressed), it will do much to restore the confidence of the employees that remain at US Foodservice and many of the employees that left the company over the years that Ahold would like to return to rebuild the ailing foodservice giant. Clearly, many believed their was a large credibility gap at US Foodservice and this serves to fill that gap and attract and keep good, honest employees. More amazing to some is the announcement last week that embattled former CEO Jim Miller is now suing Ahold for $10 Million for breach of contract. This lawsuit demonstrates two things very plainly - the first is the brash and bold style of Jim Miller as he continues to trumpet his innocence. I liken this to the Captain of the Titanic telling the press that he was not responsible for striking the iceberg. In either case, the ship was damaged and each man was in command and thus ultimately responsible for the disaster. Secondly, it demonstrates the protective and inclusive Upper Management style that used to be pervasive at Ahold. I'm sure we all read in disgust about the "golden parachute" that was given to Miller - this kind of executive privilege is excessive and ridiculous. Unlimited use of the company plane? At approximately $4000 per hour, this is an incredible perk especially since Miller could conceivably use the plane to fly to a ball game. Country club memberships (note the plural) for two years? What excess! Most of us would be happy to receive two weeks of severance for each month of employment if we had to resign in disgrace. How did this happen? This is a clear case of a company (Ahold) with a "vision" (the "synergies" between foodservice and retail) that would do anything to make it happen. It reminds me of the 1980's when Dean Nelson at Kraft overspent millions of dollars in an attempt to build Kraft Foodservice into the largest foodservice distributor in the Country. The end result at Ahold will be the same - a fire sale at the end for far less than was paid for the assets. Ahold will survive - a little smaller and a little wiser. In closing, I would like to reiterate my earlier comments about how political sniping is slowly diminishing our beloved foodservicerumors.com website. Dear reader - keep that in mind the next time someone calls Senator Kerry "Ketchup" or President Bush "shrub" there is nothing worth reading there. To those who send in such drivel - take this word of advice from a former political insider - name calling, sweeping generalizations and other obvious partisan nonsense does absolutely nothing to forward your political viewpoints and, quite frankly, demonstrates you are close minded and ignorant. My best to you all - I promise to write again soon. Charles S. Iroselti
September 7, 2003, Sunday
Just shake your head and keep an open mind
There is nothing more embarrassing to a Conservative like myself than to be characterized by the actions by a small group of ultra-conservatives. These characterizations serve only to wedge a larger crack between conservative and liberal thinking. I’m not alleging a vast left or right wing conspiracy like some ignorant politician (my regards to Senator Clinton) - Conservatives are not the only group characterized this way. Ultra Left Wing Liberals also tend to embarrass the majority of liberal thinkers and paint them with the same paintbrush.
Don’t believe me? Here are two prime examples of ultra conservative and ultra liberal viewpoints that are giving each side a bad and inaccurate impression of the other
Judge Roy Moore and the Tem Commandments
Judge Roy Moore continues his rants and pontification over the removal of the 10 Commandments display outside his Courtroom. Judge Moore has made this his personal crusade as he talks about the “destruction of Christian faith and values” because of the removal. What does a conservative like me think about this? I personally think Moore is overzealous and ignorant. I understand that the spirit of “separation of Church and State” in the constitution was to prevent a religious movement from taking over our government. I also understand that this is a diverse country and the Christian religion is practiced open and freely in hundreds of thousands of churches across this country. So what’s the problem here? Does the Judge actually believe that the removal of the 10 Commandments from the public viewing area is an attempt to destroy them or diminish them? What would Judge Moore do if it was a copy of the Koran on display instead of the 10 Commandments? Would he fight with the same vigor or would he fight with equal vigor to remove it. Moore is a shallow and ignorant as they come – and so are his followers.
But how many liberals out there are identifying conservatives like me with this ridiculous charade? How many are sitting around making comments about how terrible all conservatives are based on the actions of an extremist and a few followers? Too many – that is for sure.
But no portion of far right wing idiocy can go by without an equally moronic stand by a far left wing nutcase. Witness, my friends, Congressman Sheila Jackson Lee (D- Texas).
Congressman Sheila Jackson Lee’s “storm of controversy”
Thank goodness the people of Texas have Sheila Jackson Lee to deal with the terrible human crime of racism. Is Lee fighting over affirmative action? Nope. Fighting over a law that excludes minorities? Guess again. Lee has decided to tackle the all-important inherent racism of hurricanes. Yes, you did read that right. Congressman Lee believes that hurricanes should have more “African American sounding names”. Even though I personally know several African Americans who have had hurricanes named after them (James and Andrew are two examples), Ms. Lee will not be happy until “Hurricane Tyrone” or other ethnic names are used. Great fight, Ms. Lee – this will make huge steps forward towards eliminating racism. Who can blame her for wanting horrific storms that inflict serious damage to property and people’s lives to be associated with African Americans? What an embarrassment! And yes, many conservatives hear this nonsense and link all liberals to this kind of ridiculous thinking. I have many liberal friends here at the University and I guarantee that all of them find Lee’s fight ridiculous, counter-productive and, yes, embarrassing.
The bottom line
When you take away right wing zealots like Moore and left wing zealots like Lee, you will find we are not as far apart after all. If we could all just remember – with the exception of a small group of extremists on both sides – we are closer to working together to solve our problems than you would imagine. When you remove the extremist element, the playing field becomes clearer – and larger.
Am I calling for anyone to stop Lee and Moore from expressing their views? Absolutely Not! Moore and Lee have much to teach us all – if we take time to truly listen and learn.
Dr. Iroselti is a Senior Professor of Business ethics and a decorated veteran of the Second World War. He served in various positions under Presidents Nixon and Ford before becoming a Professor in 1996 at the age of 74. His Nationally syndicated column appears once a week throughout the U.S.
Analysis of the speech made by Anders Moberg, CEO Royal Ahold on September 4, 2003
Anders Moberg, the CEO of Royal Ahold, spoke to the shareholders of Royal Ahold on September 4, 2003.Below is my analysis of what was said and my predictions for the future of US Foodservice.
Excerpts from the Speech
Mr. Moberg devoted a specific section of his speech to US Foodservice. Here is what he said:
U.S. Foodservice is in a sub-optimal state right now. Having looked at this very carefully, I genuinely believe that we can build upon, what is today, a collection of leading regional assets. And in so doing, access a major source of value for shareholders. I know that you are very interested in our U.S. Foodservice business, so let me say a little more about it before turning to food retail. The foodservice market in the United States is huge. It's worth $160 billion plus. There are essentially two national players: SYSCO with 15% market share and U.S. Foodservice with 11%, which is over $ 18 billion dollars. So there is lots of room for growth.
Our plans to integrate our U.S. Foodservice business, after a series of acquisitions, was badly de-railed by the fraud discovered in 2003. And at this stage, we don't know the true underlying strategic value of our asset which is, nevertheless, a major player in what still amounts to a highly fragmented, but still very important, growth industry. So, therefore to sell it off today would create a massive destruction of shareholder value!
In terms of our strategic deliberations, this critical asset will be actively managed to get on track. My current assessment is that it will take us 18 to 24 months to rebuild this company and restore its value. Only when we have a clear picture of the value of this business, can we decide the role of U.S. Foodservice within the future strategy of Ahold.
So, what are we going to do over the next 18 to 24 months?
U.S. Foodservice will be managed as a single business operating separately from food retail, and will receive the full attention of Ahold's Executive Board. We will further establish an Advisory Board, which will include some external members, to support U.S. Foodservice. We are in the process of installing a new management team whose assignment is to get the company on track. During this period, we foresee limited investment. The company has grown too fast through acquisitions with insufficient integration. We believe that the ingredients are all there. We will have to put them together.
As a result of our investigations, we will put in the necessary disciplines and strict internal controls to establish good governance and restore the business to health. Please rest assured that we, as the Executive Board, will keep a very close eye on this process. We will keep you informed of our progress on a quarterly basis.
What did he really say?
“Sub-Optimal state”? This business is in trouble. “Leading regional assets” indicates that some locations are profitable but many are marginal. The good news for current employees is that Ahold has already attempted to sell the business and found that they can get very little for it in it’s present condition and thus, as noted above, “to sell it off today would create a massive destruction of shareholder value”. So, at least for the next 18 – 24 months, US Foodservice employees shouldn’t worry about being sold off. However, the message is very clear that there will be numerous layoffs and locations closing in the near future (key phrases here are “limited investment” and “acquisitions with insufficient integration”. This also contained a less than subtle criticism of Jim Miller’s administration (lots of acquisitions with no clear plans for integration of the new assets).
As far as the involvement of the Executive Board, this is expected as Ahold positions US Foodservice as “the red headed step child” and “Troubled son” in an otherwise healthy and robust family. Ahold needs to show that all the troubles they are in can be linked back to US Foodservice – demonstrating that their key business – retail – is still healthy and will continue to be after US Foodservice is gone. Unless the new management team can pull everything together and make the company viable, look for Ahold to sell off US Foodservice within 2 years – and don’t be surprised if it is sold off in pieces.
Another important key to US Foodservice is it’s position in the speech (it was the first business mentioned) and it was handled much quicker and with more brevity than the retail businesses. Bottom line – Ahold is a retail company and they will be a retail company again. US Foodservice will be remembered as the ill-fated excursion into the foodservice market – and will be dismissed as a near death experience for Ahold.
Dr. Iroselti is a Senior Professor of Business ethics and a decorated veteran of the Second World War. He served in various positions under Presidents Nixon and Ford before becoming a Professor in 1996 at the age of 74.
August 12, 2003, Tuesday
Not as clear cut as you may think
I received numerous emails answering “The Ethics Test” I issued in my last column – there was certainly a wide range of responses. I’m sure you are anxious to read how people responded and my opinions as well. I have re-printed each question below along with the answers you all sent in. After your answers is my opinion of each case.
Here are the three questions followed by your opinions, comment and my comments:
Is this ethical??
Your overwhelming response was “No”. Here are the numbers:
Unethical 92%
Ethical 8%
Here are some of the comments you made about this case:
- “I lived in Orlando for a few years and I can tell you the same situation happened … there were “resident” stores and “tourist” stores…. Consumer beware!”
- “Typical behavior from Ahold – screw the minorities in the inner city. Nice job, but what did expect from Euro trash?”
- “They can do whatever they want. Most people in the city do not have cars and therefore have no choice but to go to their store. It’s legal but it isn’t ethical.”
Here are my comments:
One of the main lessons that must be learned when evaluating any ethics cases (or anything in lie for that matter) is to be sure you have all the facts. In this case, the Urban stores had significantly higher costs due to significantly higher levels of shoplifting, robbery and subsequent need for more expensive security. Additionally, the stores cost more to open and maintain due to higher taxes (particularly in Washington D.C.), higher rents and lease rates and other costs. At the same time, these stores had customers with lower incomes so an overall goal had to be keeping costs of goods lower at the stores. The selling of lower quality meat at higher pricing was one way the company could recoup some of those higher costs. Even with those measures, Giant earned significantly less at the urban locations than the suburban ones. For those of you who still think this is unfair, consider the alternative – which would be for Giant to close those low profit urban stores and leave those living in those areas without a grocery store.
Time Product is on the Sales Floor Discount Allowed
3 Months 20%
6 Months 40%
A department store chain based in Boston tracks these discounts aggressively and always makes sure they are only taking the discount if the product is on the floor for the agreed upon time frame. However, they only discount about 40% of the merchandise and sell the remainder at full price – thus pocketing the remainder of the discount.
Is this ethical??
Once again, the majority of you came in saying this practice was unethical. Here are the numbers:
Unethical 84%
Ethical 16%
Here are some of the comments you made about this case:
- “If the store can sell just as much without discounting then why not.”
- “The store can sell the clothes for whatever price they want.”
- “I worked for a store where we used to change the labels from unrecognized to name brands – that is illegal. Not taking the discount is not a problem.”
Here are my comments:
Clearly this is unethical. There is an implied contract to these arrangements, which obligates the store to reduce pricing on the goods when the supplier discount takes effect. The reason for the discount is to encourage faster turns of inventory and the store is violating the spirit of the discount. Additionally, the practice is ill advised because the cost of keeping slower moving inventory may be more than applying the discount and selling the products faster.
DDT was banned for use in the United States but is still one of largest produced pest control chemicals in the United States. Why? Because the United States exports it all over the World - the African Continent being the largest user of DDT today. Because of the higher concentration of wildlife in Africa, the fatality rate for wildlife is much higher than in the United States – 1.8 birds and 1.3 mammals are killed for every acre the product is used in Africa. Thus, a chemical banned in the United States because of its terrible effect on wildlife is being exported to another country that does not have any regulations against it – thus killing more wildlife there per acre than in the United States.
Is this ethical?
Perhaps I shouldn’t have called the response to case #1 overwhelming! Here are the numbers for this case:
Unethical 99%+
Ethical <1%
Here are some of your comments:
“Leave it to Corporate America to export death to underprivileged Countries like Africa”
“This makes me sick!”
“This doesn’t surprise me. Unless environmental groups like PETA, GREENPEACE and others stick up for the animals, who will?”
Here are my comments:
This is a favorite case to present to my pupils as it clearly demonstrates that one must have all the facts before coming to a conclusion about ethics. Yes, the DDT does kill significantly more wildlife in Africa – but why does the country use so much of the chemical? The answer – malaria and other sicknesses. It is estimated that the use of DDT in Africa saves over 10,000 human lives each year – most of those are children. Would any sane individual value the life of a bird, fish or other animal over those 10,000+ lives? Probably not – though PETA and others have come out AGAINST the use of DDT in Africa even though they are aware of the statistics – does that change your opinion of them?
Ethics are typically a matter of opinion though many feel they should not be. We all have our own individual code of ethics and usually have strong opinions about them. As you can see by the examples I have provided, there is rarely if ever a cut and dry answer to an ethics question – unless, of course, if the behavior or policy being reviewed is illegal.
The job of Corporate Ethicist is among the most challenging in business today – and usually the most overlooked. Less than 2/3 of the Fortune 500 companies have an ethicist on staff – which, in my humble opinion, is a mistake.
Charles S. Iroselti
July 20, 2003, Sunday
The answers aren’t as easy as you think
To say the US Foodservice is facing an ethics dilemma is a true understatement. The problems at MCI/Worldcom, Enron and U.S. Foodservice has certainly brought the subject of business honesty to the forefront. Many folks are calling me to ask opinions about these events because I am a business ethics professor.
Let’s make something clear -- the actions of these companies were fraud. No one is going to discuss how “cooking the books” could be construed as ethical so business ethics truly does not enter into the equation for their circumstances. Business ethics is the discussion of situations that can occur in business every day that could be interpreted as right or wrong depending upon your viewpoint, belief system or any number of other factors. Quite often, there is no right or wrong answer in business ethics – if it was that simple, the idea of teaching business ethics would be ludicrous.
I teach my students to make judgment calls on business ethics every day. To demonstrate the difference between business ethics and criminal behavior, I thought I would share a short examination and invite your participation.
Below are three actual business ethics cases I use in my classes. Your assignment, should you choose to accept it, is to email your answers for these three questions to ciroselti@foodservicerumors.com. Your opinions as well as my expert analysis will appear in August.
Here are the three questions:
Is this ethical??
Time Product is on the Sales Floor Discount Allowed
3 Months 20%
6 Months 40%
A department store chain based in Boston tracks these discounts aggressively and always makes sure they are only taking the discount if the product is on the floor for the agreed upon time frame. However, they only discount about 40% of the merchandise and sell the remainder at full price – thus pocketing the remainder of the discount.
Is this ethical??
DDT was banned for use in the United States but is still one of largest produced pest control chemicals in the United States. Why? Because the United States exports it all over the World - the African Continent being the largest user of DDT today. Because of the higher concentration of wildlife in Africa, the fatality rate for wildlife is much higher than in the United States – 1.8 birds and 1.3 mammals are killed for every acre the product is used in Africa. Thus, a chemical banned in the United States because of its terrible effect on wildlife is being exported to another country that does not have any regulations against it – thus killing more wildlife there per acre than in the United States.
Is this ethical?
Enjoy your assignment – and don’t be surprised if the cases I have given you above are not as cut and dry as they appear.
Charles S. Iroselti
May 13, 2003,
Tuesday
submitted by Dr. I a few days ago...
Where do we go from here?
The future of foodservice is fuzzy to some – clear to others
Is the DSR a dying breed?
Charles S. Iroselti, Phd.
The Most respected name in foodservice distribution analysis
CSIroselti@foodservicerumors.com
This is the conclusion of a four part series explaining the dynamics of the foodservice distribution industry.
In part one, I discussed how the foodservice distribution industry has grown and consolidated and, in the process, changed their focus from profitability through sales to profitability through procurement. In part two, I discussed how end users who were frustrated by distributors making product changes often based solely on procurement allowances took a larger role in deciding what each distributor would stock through alliances with manufacturers. In Part three, I discussed how manufacturers have been and continue to play both sides of the fence on this issue and thus buttress the current dysfunctional business model. In this final segment, I look at the future of foodservice distribution in general and specifically at US Foodservice.
Three words – “in a corner”. Fact is, this business is a mess. There are so many unnecessary costs – unnecessary pieces of paper, data, exchange of funds – that are driving everyone’s costs up and profits down. Beyond the fact that so much inefficiencies exist is an underlying uneasiness about the business – the feeling that all is not “above board” in the foodservice distribution industry.
Recently, Wal-Mart sold their distribution business (McLean). I have talked to some members of the foodservice community (specifically, numerous current employees of US Foodservice) and they speculated that Wal-Mart was “clearing the decks” so to speak so they can purchase US Foodservice. In my opinion, this could not be farther from the truth. The fact is, the US Foodservice scandal has revealed two things – the first and most obvious is the fraud that took place that inflated earnings by an estimated $880 Million. The less obvious discovery to those outside the industry is the world of manufacturer rebates and their volume and scope. In my opinion, Wal-Mart exited the McLean business for several reasons – certainly a major reason was that they could earn a much better ROI by reinvesting in their core business but another unstated reason is probably the risk of being involved in a business where the day to day operations appear to be much less than above aboard. I’m sure Wal-Mart has seen how the US Foodservice is dragging one of their major worldwide competitors down (Ahold) and sold McLean to eliminate the risk of being associated with an industry that to many appears to be unethical.
I realize many will take offense at my referring to the foodservice distribution industry today as unethical – but many of us old timers who have been associated with the business for so many years share that opinion. At one time in the industry, rebates were a small part of the profit and loss of a foodservice distributor – today they are everything. This wouldn’t be a problem if there were not so many cost plus arrangements in the foodservice distribution industry that clearly do not address these rebates – thus making buyers everywhere ask the question, “Just what is cost?” You would think this would be an easy question to answer but of course it is not. Any business where you are simply purchasing and re-selling goods and you cannot tell me how much each item costs is certainly suspect. This should be a simple business – but it is not! It is a business that is filled with behind the scenes rebates, allowances and deals.
I mentioned inefficiency earlier – all the paperwork and other costs associated with tracking all the transactions in the foodservice distribution industry. I cannot even begin to estimate how huge a cost this is but believe me – huge is an excellent term for it. The foodservice distributor has so much to track and look at that the cost of adequately tracking, billing, paying and applying all the rebates, deals, etc.. have to cost a fortune. Would anyone care to guess the percentage of cost to track all this nonsense? 1 percent? 2 percent? Personally, I believe those estimates are low. And when you consider that before tax profits average about 6-8% in the foodservice distribution industry, the affect of those costs are exacerbated to say the least.
I have said it before and will say it again – the first broadline distributor to eliminate the majority of costs to get product to the consumers (restaurants, hospitals, schools, etc..) is going to force a radical change in the industry by forcing the sell prices down so significantly that everyone else will be forced to follow their lead or die. What inefficiencies will that broadliner eliminate??
1. DSRs – I was a DSR for years. I admire DSRs. But soon the DSR will be gone. With the connectivity of the World Wide Web, why would any operator want a salesperson to visit them and take their order when they could do it cheaper, faster and at their convenience on the Internet? Despite all the mail I get which writers pontificate about the role of the DSR and how the DSR will never die, all the signs point to the elimination of the DSR. When I was a DSR in the 1960’s and early 1970’s, the average DSR earned over $40,000 per year (which, when accounting for inflation, is over $100,000 today). The average DSR earns less than $35,000 today – proof that his services are not nearly as vital as they were. Being a DSR used to be a career – now it is a job.
2. Receivables – Once ordering is taking place over the web, why would anyone want to deal with writing checks to the distributor? Payment directly from the operator’s bank account will be the rule of the day in the future. Imagine how much time and money will be saved by using this type of system. Not ready for direct payments? Credit card companies will carry the receivables rather than distributors having to carry huge receivables balances.
3. Rebates and allowances – The broadliner who pulls this all together will go back to his suppliers and demand a bottom line price – and the wise manufacturers will give it to them. Why? So they can eliminate all the paperwork on their end to administer all those rebates and allowances and simplify their business.
I have no doubt that the broadliner that eventually does this can eliminate up to 5% of his costs out of the distribution chain. 5%! That my friend is what is referred to as a sustainable competitive advantage – and no one will be able to beat that! Competitors will be forced to change to that way of doing business – or they will die as quickly as the buggy whip manufacturers did when Henry Ford, Ransom Olds and the Chrysler brothers started selling mass produced automobiles!
US Foodservice is a mess (I apologize for the frankness but there is no better way to describe their condition). Forget about the fact that they overstated earnings by $880 Million – think about the litigation that will be taking place for years over the fraud that has been perpetrated. This threatened litigation makes the company very unattractive to almost any buyer – which is another reason why Wal-Mart wants nothing to do with it. US Foodservice has been on a mission for a number of years to catch up to and pass Sysco Corporation. I dare say that in their haste to beat Sysco, they have not properly managed their portfolio of businesses. The purchase of Alliant Foodservice is a great example. If you review locations of distribution centers of US Foodservice before the acquisition of Alliant, there were numerous duplications in many major markets across the United States. In many of these markets, the old Alliant distribution center and the existing US Foodservice distribution center are both still operating. One can only imagine the ongoing cost incurred for these duplications. When I reviewed the flurry of acquisitions made by US Foodservice, I came to the conclusion that many of the acquisitions were made for the sake of making an acquisition – in other words, it appears many of the purchases were not particularly well thought out and added very little to the long term strength of the company. This of course is what made US Foodservice a perfect acquisition for Ahold – a company that also appeared to be on a “buy it for the sake of buying it” binge. In other words – these two businesses were made for each other!
Here are my predictions for US Foodservice and it’s future:
1. Jim Miller will either resign or be terminated. It is no matter if Miller was not involved in the $880 Million fraud – he was steering the ship when it ran aground and he needs to take responsibility for what occurred during his watch. I am not an Ahold shareholder but I would be very upset as a shareholder if Miller was allowed to stay on board.
2. If they are able to find a buyer, Ahold will dump US Foodservice like a bad habit. By now, they realize there is no efficiencies or “synergies” to be gained for a retail company to own and operate a foodservice distribution company. Possible buyer – Clayton, Dublier and Rice (yes, the company that sold them Alliant Foodservice). CDR is currently buying up European based foodservice distributors so they have an interest in the business. CDR has a strong balance sheet and why not buy the company you sold less that 2 years ago for less than half you were paid for it?
3. Whether sold or not, the new CEO of US Foodservice will spend less time worrying about catching Sysco and more time getting the ship in order. Numerous distribution centers will be closed and subsequently layoffs will follow.
US Foodservice will survive but will no longer be focused solely on chasing industry leader Sysco – they will be more concerned with making US Foodservice a profitable company. The Ahold/US Foodservice scandal has sounded a wake up call for the foodservice distribution industry. Distributors have struggled for years to maintain reasonable profitability and despite having all the hard answers to make the necessary changes available, they have ignored them. This scandal will encourage at least one major operator to review those answers and take the steps to make the changes and will literally change the industry. It’s about time.
Charles S. Iroselti, Phd.
The Most respected name in foodservice distribution analysis
CSIroselti@foodservicerumors.com
April 17, 2003, Thursday
Baseball Hall of Fame cancels “Bull Durham Festivities” because of anti-war criticism by co-stars Tim Robbins and Susan Sarandon.
A planned celebration for the end of April of the 15th anniversary of baseball movie Bull Durham has been cancelled by the Baseball Hall of Fame in Cooperstown, New York. The Hall’s President, Dale Petroskey, has confirmed the cancellation was due to anti-war activities and criticism of two of the films co-stars – long time partners Tim Robbins and Susan Sarandon (Note: AP called Robbins and Sarandon “partners” – I have no idea if they are married or not). Petroskey sent a letter to Robbins and Sarandon this week, telling them the festivities April 26-27 at Cooperstown, N.Y., had been called off.
The Hall makes its case
Petroskey noted that Robbins and Sarandon have been “pushing an anti war agenda everywhere they have gone” and noted that “the Baseball Hall of Fame is not about Politics”. Petroskey, a former White House assistant press secretary under Ronald Reagan, noted that recent comments by the actors "ultimately could put our troops in even more danger." In the letter Petroskey said "In a free country such as ours, every American has the right to his or her own opinions, and to express them. Public figures, such as you, have platforms much larger than the average American's, which provide you an extraordinary opportunity to have your views heard -- and an equally large obligation to act and speak responsibly. We believe your very public criticism of President Bush at this important -- and sensitive -- time in our nation's history helps undermine the U.S. position, which ultimately could put our troops in even more danger. As an institution, we stand behind our President and our troops in this conflict."
Robbins responds
Reached Wednesday night, Robbins said he was "dismayed" by the decision. He responded with a letter he planned to send to Petroskey, telling him: "You belong with the cowards and ideologues in a hall of infamy and shame." In his letter, Robbins said he'd been looking forward to "a weekend away from politics and war." He said he remained "skeptical" of the war plans and told Petroskey he did not realize baseball was "a Republican sport."
"I am sorry that you have chosen to use baseball and your position at the Hall of Fame to make a political statement," Robbins wrote. "I know there are many baseball fans that disagree with you, and even more that will react with disgust to realize baseball is being politicized. To suggest that my criticism of the President put the troops in danger is absurd. ... I wish you had, in your letter, saved me the rhetoric and talked honestly about your ties to the Bush and Reagan administrations. You invoke patriotism and use words like 'freedom' in an attempt to intimidate and bully. In doing so, you dishonor the words 'patriotism' and 'freedom' and dishonor the men and women who have fought wars to keep this nation a place where one can freely express their opinions without fear of reprisal or punishment."
Both are right – and both are wrong
In my opinion, Petroskey overreacted to the behavior of Robbins and Sarandon. While they have been very public about their anti war views, there was not guarantee that they would have went on an anti war diatribe at the ceremonies at the Hall. It seems obvious that Petroskey’s personal beliefs and politics entered into his decision to cancel the event.
On the other hand, Robbins and Sarandon are among those in the Hollywood left that are intent on politicizing almost every event. They have strongly held beliefs and use as many venues as possible to let them be known – including the Academy Awards and other public events which have absolutely nothing to do with politics. To Petroskey’s defense, I have never heard mention that the Baseball Hall of Fame was “right wing” or used for any other purpose than promoting the game of baseball up to this point – this is most likely an attempt to keep politics out of the Hall. However, that strategy obviously backfired.
If it looks like a horse and sounds like a horse – it’s a horse
Petroskey looked at all the appearances that Robbins and Sarandon have been making and assumed that they would continue their anti-war diatribe at the Hall of Fame – why would they change their behavior at the Hall? He wanted to protect the Hall from being involved in politics (it doesn’t belong there) and for that he should be rewarded. However, a phone call to the pair requesting that the day be “politics free” would have been a better choice. If Robbins and Sarandon had agreed, the event would have taken place without a hitch. If they had not agreed, Petroskey could have cancelled with good reason. If Robbins and Sarandon had agreed and then violated the agreement, he could have released that information to the media and still been the one above all the controversy. As it is, the Hall is now being portrayed as right wing – which makes them the loser in this affair, as the Hall of Fame should be apolitical.
Fact is, Petroskey acted based on his own bias and that was wrong. I understand how much he cannot stand these two Hollywood phonies – I join him in his dislike of these two left-wingers and their phony, obnoxious attempts for publicity (showing up to the Academy Awards in the electric car was wonderful – do they also fly around in electric planes? Also – what fuel do they think was used to generate the electricity? Perhaps it was safe and clean nuclear energy – but that’s another column). However, by banning them from the Hall, he has given the publicity loving leftists more fuel for their fire.
The answer?
Petroskey should have called Robbins and Sarandon and discussed this – the same way that both sides of each issue confronting our great country should discuss them. Instead, he assumed that the pair would act as they have been acting for months – bringing their agenda to the people at every turn and every venue rather than debating the issue in an appropriate manner. This whole episode is the very definition of “politics” – and is why I for one have a deep hatred of politicians (I commend statesmen but abhor politicians). You would think baseball would be above all the politics – but thanks to Petroskey it is not.
Abraham Lincoln once said, “I rather be thought of as a fool than open my mouth and remove all doubt”. All parties should be ashamed – what should have been a very private discussion and understanding has become a very public brouhaha that has made Petroskey, Robbins and Sarandon look like the close-minded fools that they apparently are.
Dr. Iroselti is a Senior Professor of Business ethics and a decorated veteran of the Second World War. He served in various positions under Presidents Nixon and Ford before becoming a Professor in 1996 at the age of 74.
April 6-7, 2003, The Weekend!
Manufacturers “join the fight”
Playing both sides of the fence and an unwillingness to commit has made manufacturers profitable but vulnerable
Charles S. Iroselti, Phd.
The Most respected name in foodservice distribution analysis
CSIroselti@foodservicerumors.com
This is the third of a four part series explaining the dynamics of the foodservice distribution industry.
In part one, I discussed how the foodservice distribution industry has grown and consolidated and, in the process, changed their focus from profitability through sales to profitability through procurement. In part two, I discussed how end users who were frustrated by distributors making product changes often based solely on procurement allowances took a larger role in deciding what each distributor would stock through alliances with manufacturers. In Part three, I will discuss how manufacturers have been and continue to play both sides of the fence on this issue and thus buttress the current dysfunctional business model
Many contend that LeGout was the first company to offer a substantial procurement allowance to a foodservice distributor (the offer was allegedly made to and accepted by Sysco). No matter who originally made the offer, procurement allowances swept through the manufacturer community like a whirlwind as distributors demanded more “behind the line” monies and manufacturers gladly paid them. As much as manufacturers, brokers and other representatives of the manufacturer community complained about the allowances, the fact is that such a discussion could be characterized as “the pot calling the kettle black.”
As manufacturers vied for and earned distributor business based solely on procurement allowances, many of these allowances came with exclusivity agreements – a manufacturer would provide significantly more income for the distributor if they guaranteed that competitors of the manufacturer would not be allowed in the door. As distributors accepted these agreements, the manufacturers left on the “outside” had to find ways to force their products “inside”. Thus, the end user allowance (and end user specification programs) were born. If a manufacturer couldn’t get product in the door due to an allowance deal, all he did was go to that distributor’s largest accounts and force the product in. And why not sweeten the deal for the end users by offering allowances to do that? Once that was done, end users expected and demanded allowances.
So all of a sudden, the manufacturers found that they were paying allowances to distributors and end users. Distributors made the situation worse by recognizing that manufacturers were doing this and, to gain favor with their larger accounts, actually going to the manufacturers and demanding that they pay their best customers procurement allowances. The manufacturer had dug a fairly deep hole that over the long run served only one real purpose – add expenses to the foodservice distribution model.
In the Mid 1990’s, one of the larger manufacturers would courageously attempt to lead the manufacturers out of this hole – with disastrous results.
In the mid 1990’s, Hunt-Wesson reviewed the state of the foodservice business and attempted to make some necessary changes. They saw that an inordinate amount of dollars and administrative time was being used for procurement allowances and end user programs – and they attempted to make a change that would, in the long run, benefit the industry. Hunt Wesson came forward and announced across the board reductions in procurement programs – a powerhouse in the foodservice industry had stepped forward to take a stand. Now, if all the other powerhouses would just follow their lead then effective and meaningful change could take place.
Of course, none of the other manufacturers took their lead. In fact, many increased allowances because they felt it was a perfect opportunity to obtain short-term gains. Among the worse offenders was Nestle – a company that is the largest food company in the world but is certainly, in my humble opinion, not a leader. Within a year, a wounded Hunt Wesson would have to retract their strategy and go back to the allowance game – a terrible blow to an industry that had been handed the perfect chance to restructure and had blown it due to short term greed.
As more and more of the common practices of the foodservice distrib