Roundtable Report: Attack of the Killer Tomato! (Let's Hope Not ...)

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As if dealing with flammable liquids weren’t enough, retailers charged with reducing risk-and-liability claims against their businesses now have to face … the tomato.

With successful foodservice programs mandating fresh produce and made-to-order options, exposure to potential lawsuits from contaminated food (such as that tomato) ramps up exponentially, retailers attending the CSP Leadership and Crisis Prevention Forum learned this spring in Denver.

With expert presenters and retailers themselves discussing issues from food safety to cyber crime, about 50 attendees went home with information on how to reduce risk, ways to deter cybertheft and what to expect with upcoming insurance rates.

Microbe Management

Frozen-yogurt-topping stations are delighting customers, but could a retailer face an allergy-related lawsuit if the peanuts get mixed into the chocolate topping?

This is the type of concern raised when retailers rush into the risk-filled world of foodservice, according to Donna Hood Crecca, senior director of research firm Technomic Inc., Chicago.

Unfortunately, trends such as meal customization and freshness are important elements in mounting a successful foodservice program today, Crecca said, which puts added responsibility on the retailer.

“Freshness is the mandate,” she said. “But the need for safe handling explodes. With produce, raw proteins, fresh chicken, burgers, your handling practices have to change.”

Some foodservice tips she offered:

• Elevate the processes for hiring, training and accountability.
• Create daily checklists.
• Dedicate a food-safety manager.
• Make a commitment from the top down.

“Designate a food-safety champion,” she said. “It can’t be something else ‘Bob’ also does.”

Other foodservice trends are also “pushing the envelope” with regard to food safety, including “food with integrity,” Crecca said, meaning fewer preservatives and no genetically modified products.

For example, St. Louis-based Panera Bread now has ingredients it will no longer use—a “no-no list”—including artificial colors, preservatives and antibiotics.

“But when you start moving to antibiotic-free protein, [those antibiotics] kill bacteria, so are they open to more bacteria?” she said. “Yes, they are. There’s a certain level of exposure.” She advised conference attendees to have serious discussions with their foodservice directors about menu planning, because all of the implications have to be thought through.

On the positive side, Technomic research shows that consumers are willing to go to c-stores for food and beverage, Crecca said. The company’s surveys show 22% of people who shop at c-stores say they have increased food and beverage purchases at convenience stores.

For retailers building larger-format stores—5,000 to 6,000 square feet—the news is also good, with Technomic studies showing 77% of consumers saying it’s appealing; the interest among 16- to 34-yearolds is 88%. “They [say they] would visit such a store, and more than half say they’d visit more often and would visit for foodservice more often,” she said.

Mitigating Cyber Risk

Regarding data security, Chris Lietz, vice president of cyber risk management for Coalfire, Louisville, Colo., advised retailers to consider a broad view of protecting data beyond credit cards. He described cybersecurity as an executive-level function, something that should extend to employee data and trade secrets.

He described a “heat map,” which means retailers should consider data in terms of a tiered red, yellow and green coding. They should consider more important information red and less important green. “Executives should know this,” he said. “What do you have? What are you protecting? What are you worried about? You have credit cards, but you also have trade secrets, corporate assets and employee information.”

Health records, for instance, include enough information criminals can use to perpetrate greater fraud than stealing a credit card, he said.

“How mature are your controls? What is your risk appetite?” he said. “And then there’s implementation. It’s not just one project, but a continuous improvement program to manage risk.”

Among recent data breaches, Coalfire’s research shows most involved criminals obtaining privileged credentials. Other incidences involved point-of-sale (POS) malware, weak segmentation (inadequate boundaries between card and corporate data) and third-party compromise.

For Georgia retailer Jenny Bullard, the move to a more secure digital environment began several years ago with compliance to the credit-card companies’ Payment Card Industry (PCI) standards, with the latest set of requirements set to take effect this month. In the latest round, retailers must check pumps daily to deter and prevent skimming.

“It gets to the point where we’re doing so much to protect the business that we don’t have time to conduct business,” said Bullard, CIO of Waycross, Ga.-based Flash Foods Inc.

Still, Bullard said, the result of keeping up with PCI has been positive. “Even though it’s been rough, we’re better off,” she said. “It helped us to be more secure with our customer and our employee information.”

CONTINUED: Taking Heat for Bad Goods

Taking Heat for Bad Goods

Vases made so thin they break when picked up, recliners that flip over backward or even baby cribs painted in lead: All of these products have been part of recent liability actions taken against retailers that sold those products, according to speakers at the forum.

Headlines that involve recalls, litigation and data breaches inevitably become of great concern to retailers, because consumers and government officials seek to identify parties responsible for defective or harmful products, according to Steve Burkhart, vice president and general counsel for BIC Corp., Shelton, Conn. As commerce becomes global, more often, “people are looking to the retailer as [being responsible since they’re] the domestic entity,” he said.

For c-stores, he said, product-liability issues often arise with no-name, private-label products; newly emerging products such as e-cigarettes; and any item manufactured overseas. If an issue arises with a foreign-manufactured product, “you’ll have to pay,” Burkhart said. “The court is not going to wait for your [foreign] manufacturer to show up.”

Forty-two percent of recently recalled products have come from China, he said, which can involve cultural challenges. The business mindset overseas often supports and even encourages manufacturers to circumvent U.S. standards, he said.

To guard against potential lawsuits and damage to a U.S. retailer’s reputation, Burkhart suggested several steps:

• Develop a recall strategy.
• Investigate all claims.
• Contact the manufacturer in the event of a claim.
• Let federal commissioners know about all concerns, especially if the manufacturer fails to do so. (But also verify the product is faulty to prevent souring the relationship with that provider.)
• Control purchasing.
• Obtain indemnification status within contracts and sufficient insurance coverage.
• Require foreign companies to have domestic insurance.
• Request necessary certificates and proof of compliance to accepted standards.
• Work with reputable manufacturers.

Doing such due diligence may not absolve a company, but it could keep damages from reaching the punitive level. More cases are emerging that seek imprisonment or fines against a corporation’s officers, he said.

Giving an example of an entrepreneur who sold stress-relieving magnet balls (which a federal agency found to be a hazard if small children swallowed them), Burkhart said government officials were “potentially overzealous” and, with limited resources, were suspect in their decision to litigate against that entrepreneur.

“Yes, this product may be a hazard to small children, but so are dimes and pennies,” he said.

Knock on Wood

The combination of a quiet storm season and investors interested in the insurance industry may mean flat to possibly softer insurance renewal rates for retailers negotiating coverage, according to another forum speaker.

In the absence of major catastrophes, the insurance industry does well, said Stewart Van Duzer, first vice president and director of special accounts marketing for Federated Insurance, Owatonna, Minn. Also, private-equity firms have taken an interest in insurance companies, flooding them with investment dollars, he said.

“My educated guess would be that rate levels for your purchases on your products will continue to be flat or go down in 2015-2016,” he said, referring to the climate as a “silent soft market.”

Mostly larger accounts will benefit, because insurance carriers with access to investment

capital are eager to build their businesses. “If you want to shop, you’ll probably find somebody who will give you something better,” Van Duzer said. “[Insurance] companies have gotten their rate and are already giving it back in certain markets.”

A hiccup has come with insurance companies’ own investment track records. “Their returns

have been terrible,” Van Duzer said, qualifying his statement as being general. “It’s a drag on their earnings.”

Rates for workers’ compensation insurance will remain “dicey,” he said. Private investment money is still prevalent, but the Affordable Care Act (ACA)—the new federal law requiring individuals to have insurance—still has to run its course, he said.

Several issues come into play regarding the ACA. For one thing, doctors squeezed by the program may seek to make it up via workers’ comp, he said. Also, new drugs and treatments that arise, while good for the patient, are typically costly.

Another topic Van Duzer covered was the insurance concerns behind legalizing recreational use of marijuana.

“Discussions are in its infancy, but it’s coming,” he said. “[My company is] not panicked because c-stores sell beer, wine and liquor. … [Marijuana] is just another drug.”

CONTINUED: The Logisitics of Marijuana

Medicinal Purposes

Though recreational marijuana use is now legal in Denver, Mary Szarmach, vice president of trade marketing for Smoker Friendly/Gasamat, Boulder, Colo., has opted not to sell the product, primarily because of logistical reasons.

But she has gotten further into the “glass” business, which includes the implements used to smoke marijuana.

Though finding a consistent supplier was a tough first  step, her business has grown 78% since it started selling glass products in 2013, with the first quarter of this year up 19%, she said. The profit is 60% to 80%.

To provide perspective on the manufacturer or “grower,” as well as the retail side of the business, David Threlfall, founder of Trill Alternatives, also of Boulder, Colo., described the business of legally raising and selling marijuana. One of the bigger challenges is banking. The very nature of selling a substance that’s illegal in most states puts banks on edge, because the system has strict federal sanctions designed to prevent criminal activity. Threlfall has shut down several accounts because he essentially runs a cash business. In addition, federal, state and local regulators are inconsistent with the rules they need to follow to legally sell marijuana, he said, expressing concern that lawmakers did not bring growers and sellers into the discussion before crafting regulation.

But Threlfall spoke highly of the medicinal benefits of marijuana, saying that he got into the business after watching his mother succumb to an illness that marijuana could have eased.

Attendees of CSP’s Leadership and Crisis Prevention Forum, held May 20-22 in Denver:

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