business news in context, analysis with attitude

One of our favorite people, Glen Terbeek, had some thoughts about Friday’s piece noting that toy retailer FAO Schwarz decided to find a new way to find and develop innovative toys that aren’t sold by discount competitors such as Wal-Mart and Toys R Us. The company actually is auditioning independent toy inventors, inviting them in to pitch their product ideas to the company’s executives. Company CEO Ed Schmults, who used to be at Patagonia and Red Envelope, tells Business Week that he’s surprised by how little risk taking there is in the toy business. "I don't see a lot of creativity, a lot of new designs from many toy companies," he says.

Terbeek responds:

The indicting statement in the article is the following: "I don't see a lot of creativity, a lot of new designs from many toy companies," The bigger any company gets, the more risk adverse they get because who wants to take a risk. True of retailers as well. This is primarily due to the fact that they get further and further away from the users, in this case children, and more and more comfortable with their central job security.

On the other hand, FAO Schwarz continuously sees the reactions of children daily as they visit the stores and play with the toys being offered, and can react more quickly and confidently. They don't wait for traditional market research to point out a new trend or the internal process to build consensus before they make a decision. They can't, because it is too late.

They also know that if they discover a great new product, one of the big guys will try to duplicate it, or will pay a premium to buy it. This means that their business will be history if they don't continue to innovate to stay ahead.

What can be learned from this? Maybe all merchants and marketing people, (in other words demand process people), should have their offices located in stores scattered through out the chain to get close to the action. With today's technology, it is very easy to do. In fact, you have to ask why are their offices all together in one central location in the first place? Is it because they are still product distribution people? Is it because they get comfort and security from being together, where they don't have to take risks?

If the big manufacturers and the big retailers aren't creating the new innovative products, who will? It's back to the future, the local store, close to the shopper, will become important again. We need to create "chain of ones".

Actually, we think comfort and security are overrated. There’s nothing like getting up in the morning like your hair is on fire to keep the mind and heart focused on what needs to be done.

We had a story last Friday about how a meatpacker plans to file a lawsuit against the US Department of Agriculture because the USDA won’t let it perform its own mad cow disease tests on all its products and then reassure customers that its meat is BSE-free.

We suggested in our commentary that the meat packer ought to just do it and dare the USDA to challenge it in court – and in the court of public opinion.

MNB user Bob Schuller responded:

Unfortunately, what you suggest could doom any small, private company. If the Federal government takes it to court I'm sure the legal costs will probably break most companies. Unfortunately the government, using our tax dollars, can fight this battle far beyond the resources of an individual company.

Another MNB user wrote:

The USDA is just afraid of what might be found if this company tests every cow. I am not saying that more instances of BSE will be found in these cows. I am saying that it might just be found that it doesn't cost as much to test every cow as the USDA is insisting that it does. If it does prove to be less costly, then the USDA would have no excuse to not do all cattle.

Another MNB user observed:

I'm sure that somebody in the MNB community has knowledge of existing case law regarding USDA's authority in this matter. Seems to me that this is a decision for the Supreme Court. Given the imminent health concern on this, I bet at least one justice eats beef, it seems reasonable that this could get the same kind of quick review that decided the presidential election of 2000.

And another MNB user wrote:

I have never understood the position of the USDA on this matter. What additional testing any private enterprise decides is necessary to ensure the integrity and safety of it's products should be allowed and unchallenged as long as that testing does not negate any additional requirements dictated by government. The larger meat processors will only have to follow these actions if they provide value in a free market; a very appropriate forum!

We have an ongoing debate brewing here on MNB over a report issued by the Cornucopia Institute that ranks organic milk and dairy products based on federal organic standards as well as environmental and humane concerns.

The New York Times reported that “to get at the heart of the producers' actual practices, the institute sent a survey by certified mail to known marketers of organic dairy products in the United States. The survey consisted of 19 questions about the care and feeding of their cows. Using the producers' answers, the institute ranked more than 65 brands, with 18 receiving the highest rating.” Ironically, there were 10 companies that received no rating because they did not respond – and they included “the best-known brands: Aurora Organic Dairy and three owned by Dean Foods (Horizon Organic, Organic Cow of Vermont and Alta Dena), which, the institute estimates, have a 60 percent to 70 percent share of the market.”

Now, some MNB users felt that we – and the NYT - gave the Cornucopia Institute way too much credit, and suggested that the organization’s co-founder, Mark Kastel, was a paid consultant to one of the dairies that came out looking good, and therefore had a hidden agenda.

To which another of the Institute’s co-founders, Will Fantle, responded:

I would like to comment on one reader's view of the story discussing the study on organic dairy brands, "Maintaining the Integrity of Organic Dairy."

In particular, this comment: "Its founder, Kastel, is a paid consultant for Organic Valley," is patently untrue and an attempt to smear our reputation and discredit the study's findings. I know because I co-founded The Cornucopia Institute, along with Mr. Kastel, in 2004. We are an independent farm policy group designated by the IRS as an educational/research charity with a 501(c)(3) status. We have an independent, national Board of Directors made up of farmers, environmentalists, consumers and scientists. Our mission is all about promoting economic justice for family-scale farmers. We have a diverse mix of funding sources with no single source in our 2006 Board approved budget providing more than 8% of our funding.

Mr. Kastel has a long and varied career in the world of agriculture - agribusiness executive, to organic farmer, to business development consulting, to lobbyist for the Farmers Union. At one point, during the 1990s, Mr. Kastel did perform consulting work to Organic Valley - a farmer owned cooperative - helping them with the development of a business plan. During that time he also worked for a number of other dairy cooperatives. Although he is proud of his past experience helping the cooperative, he has not had a professional relationship with them for a number of years.

We would question whether the unidentified person posting this allegation is actually a manager with Whole Foods as he is just repeating a rumor that originated from a blog on the right-wing Hudson Institute’s web site, the nation’s leading critic of organic agriculture.

In terms of Organic Valley buying milk from the Aurora factory dairy, we checked that “rumor” as well with company officials and found it to be untrue. We encourage any concerned consumers or wholesale buyers to do the same.

At The Cornucopia Institute, we are proud of our work on behalf of our hundreds of family farmer members and we will continue to shine a light on those who are corrupting the integrity of organic agriculture. There will always be some commercial interest in this industry (that is) less than happy with our work. But we’re pleased to have the support of so many ethical business is engaged in organic commerce. If anyone has any questions, they are free to call us at 608-625-2042.

The whole issue of organic standards seems to be one that is going to grow in importance and controversy over the next few years.

And it looks like many of the players are quite willing to play hardball.


Nothing gets out juices going like a good old-fashioned ethical debate.

(Must be the Jesuit education…)
KC's View: