TWO Case Study Analysis paper

A Business Ethics Supply Chain Case Study of Publix Super Markets and the Coalition of Immokalee

Farmworkers’ Fair Food Program

Case

Author: John M. Tichenor, James Beasley & Ram Subramanian

Online Pub Date: January 02, 2018 | Original Pub. Date: 2018

Subject: Business Ethics, Corporate Social Responsibility

Level: | Type: Indirect case | Length: 2968

Copyright: © John M. Tichenor, James Beasley, and Ram Subramanian 2018

Organization: Publix Super Markets| Coalition of Immokalee Farmworkers | Organization size: Large

Region: Northern America | State:

Industry: Manufacture of food products| Retail trade, except of motor vehicles and motorcycles| Food and

beverage service activities

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: http://dx.doi.org/10.4135/9781526449566 | Online ISBN: 9781526449566

© John M. Tichenor, James Beasley, and Ram Subramanian 2018

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This content may only be distributed for use within Embry Riddle Aeronautical Univ. http://dx.doi.org/10.4135/9781526449566

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Abstract

This case study presents business ethics students with a real-world business problem related to supply chain issues in the supermarket industry. The issue revolves around the decision of Publix Super Markets (Publix) whether or not to participate in the Fair Food Program (FFP) of the Coalition of Immokalee Workers. Publix is a very well-respected employer and active member of the communities it serves. The FFF is designed to improve the working conditions of the farm workers who harvest tomatoes by paying an additional penny per pound of tomatoes picked. Publix, which operates more than 1,000 stores, is the single largest purchaser of Florida tomatoes, but does not participate in the FFP Program. Major retailers such as Yum! Brands, Whole Foods Market, and Walmart have signed onto the FFP. Publix has steadily maintained that this issue is a labor dispute and they insist that they will not and should not pay farm workers for their labor. What should Publix do?

Case Learning Outcomes

By the end of this case study, students should be able to:

• State the position of multiple stakeholders on the issue of supermarkets paying a premium for fresh vegetables.

• Describe the public relations issues involved with such a business dilemma. • Propose how Publix Super Markets (Publix) should respond to the demands of different stakeholders. • Apply major ethical decision-making frameworks to a real-life ethical supply chain issue.

Introduction

On January 16, 2014, William Crenshaw, Chief Executive Officer of Publix, read in USA Today that Walmart had joined the Fair Food Program (FFP) of the Coalition of Immokalee Workers (CIW). The FFP is designed to improve working conditions for farm workers. Pressure would likely now increase for Publix to join the FFP. While Publix had consistently and repeatedly indicated its rationale for not joining the program, the high-profile move to join the program by Walmart, was likely to push the CIW to make new demands that Publix follow suit. Crenshaw would now be faced with a new round of worries about the impact of this decision by the largest retailer in the US to pay an extra penny per pound for tomatoes and thereby support the CIW’s efforts to improve working conditions for farm workers.

Crenshaw and his staff were now in a position where the Walmart decision would raise even more serious questions about why Publix continued to resist participation in a program that many of their stakeholders would support. Would this step by Walmart erode the loyalty of Publix stakeholders, prompt a deeper entrenchment by Publix leadership in their refusal to join the CIW program, or possibly be the tipping point for Publix to join the fight for better worker health, safety, and quality of life?

Context of the Florida Tomato Industry

Each year from October to June, the vast majority of fresh-market, field-grown tomatoes in the United States are produced in Florida (Estabrook, 2011). Compared to California, which is home to the US canned tomato industry, the Florida fresh-market tomato industry faces a wide variety of challenges in mass-producing this non-native fruit. From the nutrient-poor, sandy soil to the wide variety of sub-tropical fungal diseases to the multitude of beetles, worms, and hoppers that attack the plants, growing tomatoes in Florida is very difficult. The wild ancestors of the tomato are native to the coastal deserts of northern Peru, one of the driest places on earth. Producing tomatoes in hot, humid Florida requires a wide variety of chemical fertilizers, herbicides,

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and pesticides as well as irrigation. Florida tomato companies also face the regular threats of natural disaster, cheap tomatoes from Mexico, and expanding hydroponics technologies that have enabled tomatoes from Canada and the northern United States to encroach on the Florida market share of fall and spring fresh tomatoes. Barry Estabrook, journalist and author of Tomatoland (Estabrook, 2011, p. xiv), points out that, “Even at the best of times, commodity tomato farming is a high-stakes gamble.” Industrial tomato growers have little control over what they spend on fuel, fertilizer, and pesticides, which only leaves the variable cost of labor as a possible cost control. Not surprisingly, the cost of labor has been squeezed the most to maintain the commodity fresh-tomato industry. The pay rate for picking tomatoes in 2011 was the same basic rate as thirty years prior, and adjusted for inflation, pickers’ wages have actually dropped by half during the same period (Estabrook, 2011: p. xiv).

CIW and the FFP

Harvesting tomatoes is very labor-intensive with very little mechanical automation possible. Estabrook (2011, p. 31) describes the primary job requirements for a tomato picker as, “fast hands, a back that can withstand being bent double in ninety-degree heat for up to twelve hours a day, and legs that can run over loose sand when carrying a thirty-two-pound bucket called a cubeta on one shoulder.” Besides the arduous manual labor involved, farm workers must also endure exposure to dangerous chemicals, abusive behavior by work crew managers, and many unfair labor practices (Estabrook, 2011). Complicating matters is that many of the farm workers are illegal immigrants who cannot easily report abuse to law enforcement officials without concern of deportation.

While the intense manual labor of picking tomatoes remains grueling work, working conditions may be improving thanks to the FFP organized by the CIW (Greenhouse, 2014). The CIW is an organization of farm workers headquartered in Immokalee, Florida. Immokalee, located in the southwestern part of Florida, is a leading tomato producer in the United States. In fact, almost all of the winter tomatoes grown in the United States come from Immokalee (Bittman, 2011). The CIW FFP is an agreement with major buyers of tomatoes that helps improve working conditions for farm workers. The program requires tomato buyers to pay an additional penny per pound of tomatoes. This extra penny per pound is used to increase wages and to improve the working conditions for farm workers. Specifically, additional money collected through this program goes into an audited fund and is added as a bonus to workers’ paychecks as part of the regular payroll process. The Fair Food Standards Council reports that “nearly $20 million in Fair Food Program Premiums have been paid out since January 2011” (Fair Food Standards Council, 2016). In 2014–2015, slightly more than $4 million was distributed as premiums to farmworkers. Monies collected from the additional penny per pound are also used to monitor human rights in the fields, education programs for workers, and other initiatives designed to improve the working conditions for farm workers. The additional penny per pound costs the average tomato-buying family approximately less than one dollar per year. However, the typical benefit to a farm worker can be substantial. Stephen Greenhouse points out that “Under the program, tomato pickers may receive an extra $60 to $80 a week because of the penny-a-pound premium. That means a 20 to 35 percent weekly pay increase for these workers, who average about $8.75 an hour” (Greenhouse, 2014).

The CIW FFP lists 14 “participating buyers” as partners on its website (Fair Food Program Partners, n.d.). The largest of these partners, Walmart, joined the CIW FFP in 2014 (Table 1 lists the participating buyers and their gross revenues). However, the single largest purchaser of tomatoes in Florida, Publix, has not joined the FFP.

Table 1. Fair Food Program participating buyers.

Buyer Market segment Public or private?

Year joined

Ahold USA Operates supermarkets, superstores, and online grocery stores in 13 northeastern states and Washington DC; Giant Food and Stop & Shop brands

Private 2015

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Fresh Market Specialty grocery retailer that focuses on perishable food categories; operates in 30 states

NASDAQ TFM

2015

Walmart Mass market retailer NYSE WMT

2014

Chipotle Mexican Grill

Restaurant chain that operates approximately 2,200 stores NYSE CMG

2012

Trader Joe’s Grocery chain with more than 460 stores in approximately 40 states that focuses on upscale grocery fare

Private 2012

Sodexo Foodservice and facilities operator that serves corporations, health care facilities, schools, college campuses, and other institutions

Private 2010

Aramark Foodservice provider that serves corporations, health care facilities, schools, college campuses, and other institutions

NYSE ARMK

2010

Compass Group

Worldwide foodservice and facilities operator that serves corporations, health care facilities, schools, college campuses, and other institutions

LON CPG 2009

Bon Appetit Management Co.

Foodservice provider that focuses on socially responsible practices in cafeteria services it provides to colleges and other institutions; serves 400 locations in 30 states

Private 2009

Subway Fast food franchise that primarily sells sandwiches and salads; fastest growing franchise in the world with 45,000 stores

Private 2008

Whole Foods Market

Supermarket that focuses on natural and organic foods with approximately 456 stores in United States, Canada, and UK

NASDAQ WFM

2008

Burger King Global chain of fast food restaurants Private subsidiary

2008

McDonald’s Global chain of fast food restaurants NYSE MCD

2007

Yum! Brands Global operator of over 43,500 restaurants including KFC, Pizza Hut, and Taco Bell

NYSE MCD

2005

The Supermarket Industry

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The US supermarket industry is highly fragmented with 37.1% of enterprises employing four or fewer people. Large chains such as Walmart, Kroger, Safeway, Whole Foods Market, and Publix accounted for a significant portion of industry revenues. The total supermarket sales in the US were $638 billion in 2014, an increase of 2.9% over 2013. According to US Census Bureau estimates, the top 4 companies control less than 40% of the market share, while the top 20 companies account for 64% of sales. The trend is toward increased consolidation, driven by the substantial growth of Walmart Supercenters. Walmart stores sold groceries worth $117.8 billion in 2013, the most in the industry, followed by Kroger with $76 billion. In recent years, industry sales have been driven by higher prices rather than increased unit sales. Due to the fragmented nature of the industry, the average per store revenue was $325,478 in 2014, with proceeds of goods sold accounting for 72% of revenues, followed by wages (10%), and rent (3%). The gross, operating, and pre-tax margins are the lowest for the supermarket segment compared to other retail segments (Table 2 shows margin comparisons). Meat and produce are both the largest sales generators for supermarkets and also the categories that generate the most foot traffic in stores.

Table 2. Net profit margins by selected industries.

Industry name Net profit margin (%)

Financial services (non-bank and insurance) 22.43

Banks (regional) 21.77

Drugs (biotechnology) 15.45

Software (internet) 13.08

Household products 10.22

Computer services 6.02

Healthcare products 9.95

Electronics (general) 5.80

Business and consumer services 4.61

Retail (grocery and food) 1.89

Food wholesalers 1.13

All industries 6.22

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Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html

A typical large chain supermarket is organized into departments. The main departments are grocery (dry grocery goods and alcoholic beverages), general merchandise, health and beauty care, pharmacy, and perishables. Perishables, including fresh produce such as tomatoes, account for more than half the revenues for a store. Further, meat and produce account for more than half of perishables sales. Tomatoes account for 5.3% of produce sales (Hastings, 2016). In 2014, the United States consumed 31.4 pounds of tomatoes per person per year, and the tomato is the nation’s fourth most popular fresh-market vegetable behind potatoes, lettuce, and onions (USDA, 2017).

Background on Publix

Publix Super Markets, Inc., headquartered in Lakeland, Florida, is the largest employee-owned grocery chain in the world. Founded by George W. Jenkins as a single store in 1930 in Winter Haven, Florida, Publix has grown to more than 1,100 stores in seven southeastern states (Florida, Georgia, Alabama, North Carolina, South Carolina, Tennessee, and Virginia). It is the largest privately held company in Florida and one of the largest in the United States, with 200,000 employees and total sales of $32.4 billion in 2015. Throughout its nearly ninety-year history, Publix has been a family-run business with the Jenkins family owning 20% of the retailer and multiple family members sitting on the board of directors (Forbes, n.d.).

Publix Super Markets has an excellent reputation, as demonstrated by its consistent ranking in Fortune magazine’s list of the “100 Best Companies to Work For” (from 1998 to 2014). Along with its employee profit-sharing program, Publix also provides a tuition reimbursement program and actively promotes its internal career ladder for employees. The Publix motto is “Where Shopping Is a Pleasure” and it prides itself on its customer loyalty, employee support programs, and community relations activities. Publix has won many regional and national industry and philanthropic awards, including multiple awards for its sustainability initiatives. In 2015, Consumer Reports ranked Publix as the number 2 grocery store chain behind Wegmans based on a survey of its subscribers who used factors such as quality of service and price.

As a privately-owned company, Publix stock ownership is restricted to current or former employees or board members. Employees may own Publix stock through three programs: (1) its PROFIT (Publix People Reaching Our Future Investing Together) program in which employees who work more than 1,000 hours in a year are given free stock on March 1 of the following year; (2) a 401K retirement plan; or (3) direct purchase of stock. The company stock was first made available to employees at $2.50 per share in 1959 and is currently valued at approximately $39 per share.

The Publix Response to the CIW

The CIW has regularly picketed Publix and publicly called for Publix to join the FFP. The dispute between the CIW and Publix has been widely documented in newspaper articles, editorials, and in a documentary film titled Food Chains, released in late 2014. However, Publix has not joined the FFP and has not met with the CIW. Rather, Publix responds that the tomato companies should “Put It in the Price,” by charging an additional amount for the tomatoes to improve wages and working conditions for farm workers. Publix includes the following statement regarding the CIW on its website (Publix, n.d.):

Farm work is hard work. There is no denying that. We appreciate the work achieved in order to get product off the land and on our customers’ tables. We value the relationships along the path from “farm to fork” and realize it takes a lot of people, each providing a great service. Publix remains the focus of a campaign by the Coalition of Immokalee Workers (CIW) who seeks to pressure us to become involved in the employment relationship between Florida farmers who grow tomatoes and the farmworkers they employ to harvest their product. Since first approached by the CIW in 2009, we have consistently viewed this issue as a labor dispute, and our position remains the same today.

Publix maintains that “just paying the penny” is not the right thing to do because it involves a labor dispute between farmworkers and farm owners, not between farmworkers and retailers. Further, they clearly state that they are willing to pay a penny more per pound, but that economic markets should decide the fair amount

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to pay, not pressure by an organization of farmworkers. Further, Publix states on its website, “we will not pay employees of other companies directly for their labor. That is the responsibility of their employer, and we believe all parties would be better served if appropriate wages were paid by growers to their workers, and we were charged accordingly.”

The Decision Revisited

Publix has an outstanding reputation for being a great place to work and for being a very positive member of the communities it serves. On the one hand, Publix may argue that it cannot be held accountable for the working conditions that produce the many thousands of products sold in their stores. On the other hand, the farmworkers and their communities may be considered important stakeholders and Publix should consider the needs of all stakeholders in its decision-making processes. Further, Walmart and other major competitors have decided to participate in the Fair Foods Program and the refusal of Publix to participate may be seen as a failure of social responsibility in comparison. What should Publix do? As William Crenshaw finished reading the USA Today article, he realized that he had an important decision to make regarding the Publix stance on the issue.

Discussion Questions

The following questions may be used to facilitate class discussion and to confirm achievement of the learning objectives:

• 1. What are the chief challenges Publix faces from the protests of the CIW?

• 2. What are the main ethical issues raised by this case?

• 3. Should Publix join the FFP? Why or why not?

• 4. How is the Publix position good or bad for their business?

• 5. Who should be responsible for the working conditions on tomato farms?

• 6. How might customer input be used in making this decision?

• 7. Does the Walmart position on the FFP impact Publix?

• 8. Are there specific aspects of the Publix corporate structure that makes this decision different for Publix than for Walmart?

• 9. Can the market truly determine the “fair price” for tomatoes as Publix suggests?

References Bittman, M. (2011, May 12). Immokalee: America’s Tomato Capital. New York Times, The Blogs. Retrieved on November 6, 2017 from https://bittman.blogs.nytimes.com/2011/05/12/immokalee-americas-tomato-capital/ Estabrook, B. (2011). Tomatoland: How modern industrial agriculture destroyed our most alluring fruit. Kansas City, MO: Andrews McMeel Publishing. Fair Food Program Partners. (n.d.). Retrieved on November 7, 2017 from http://www.fairfoodprogram.org/ partners/ Fair Foods Standard Council. (2016). Frequently Asked Questions. Retrieved on November 6, 2017 from http://www.fairfoodstandards.org/resources/frequently-asked-questions/ Forbes. (n.d.). Profile: Jenkins Family. Retrieved on November 6, 2017 from https://www.forbes.com/profile/ jenkins/ Greenhouse, S. (2014, April 25). In Florida Tomato Fields, a Penny Buys Progress. The New York Times. Retrieved on November 6, 2017 from https://www.nytimes.com/2014/04/25/business/in-florida-tomato-fields-

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a-penny-buys-progress.html Hastings, H. (2016, April 7). Sales Review: Tomatoes. Snacking and hothouse on the vine make up more than 55 percent of the tomatoes category. Grocery Headquarters. Retrieved on November 6, 2017 from http://www.groceryheadquarters.com/April-2016/Sales-Review-Tomatoes/ Publix. (n.d.). Put It in the Price: Publix’s Position on the CIW Campaign. Retrieved on November 6, 2017 from http://corporate.publix.com/about-publix/newsroom/put-it-in-the-price USDA. (2017, September 14). Food Availability and Consumption. United States Department of Agriculture. Retrieved on November 6, 2017 from https://www.ers.usda.gov/data-products/ag-and-food-statistics- charting-the-essentials/food-availability-and-consumption/ http://dx.doi.org/10.4135/9781526449566

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