Band of growers: the consolidated retail marketplace is changing the relationships between produce growers and retailers. What does this mean over the long haul? (Focus on Fresh).As retail giants Safeway, Ahold a·hold
Hold; grip: "I knew I could make it all right if I got . . . back to the hotel and got ahold of that bottle of brandy" Jimmy Breslin. and Kroger centralize cen·tral·ize
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es
1. To draw into or toward a center; consolidate.
2. their produce procurement to lower costs and remain competitive with the now partly decentralizing de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. Wal-Mart, produce growers face a period of tremendous change.
A community traditionally devoted to personal relationships and tradition, produce growers now have to decide whether to band together or remain independent to survive the latest evolution of retail consolidation.
Self-evaluation is nothing new to growers. They have been reassessing their long-term outlooks for the past decade. As retail consolidation gives more power to the buying side, the volume of requirements has increased and necessitated structural changes in the produce supply chain. Some suppliers are consolidating or forming alliances, depending on the commodity, to achieve consistent supply and gain leverage with produce buyers. This type of consolidation isn't particularly prevalent, however. Many produce companies are family-owned and still wish to maintain control over their operations.
PMA's "Fresh Track 2001: Supply Chain Management" report confirmed what many produce growers had long suspected. It showed that retail produce buying offices have consolidated to streamline buying operations, the number of produce suppliers with contracts to large firm produce buyers has declined and more supermarkets are relying on a top 10 list of preferred suppliers. At produce industry gatherings, it's not uncommon to find participants nervously scanning the crowd to see how many suppliers are still in attendance, and in business. "We see consolidation as a challenge for both sides. We don't see the need for the adversarial ad·ver·sar·i·al
Relating to or characteristic of an adversary; involving antagonistic elements: "the chasm between management and labor in this country, an often needlessly adversarial . . . conversations that are often revolving around that thought process, though," says Craig Bowden Craig David Bowden (born June 18, 1968) is an American professional golfer.
Bowden has gone back and forth between the PGA Tour and the Nationwide Tour during his career. He is currently a member of the PGA Tour. , president of Davis Fresh Technologies, based in Davis, Calif.
The rash of retail consolidations in the 1990s is not without its benefits. Consumers now encounter unprecedented produce offerings in grocery stores. "The number of SKUs in the produce department will grow to over 700 units in stores with sales up to $1.5 billion in sales, and grow to over 600 units in stores with over $1.5 billion in sales," said Bryan Silbermann, president of the Produce Marketing Association (PMA PMA (papillary-marginal-attached),
n a system of epidemiologic scoring of periodontal disease devised by Schour and Massler in which the symbols denote the areas involved in gingival inflammation.
PMA Progressive muscular atrophy ), based in Newark, Del., at the Fresh Produce & Floral Council membership luncheon in March. Suppliers are under pressure to meet demand, while keeping up with new varieties, customized sizes and packaging.
The days are long gone when produce growers closed a deal with a smile and a handshake. Today's produce firms are evolving into a new hybrid of value-added services, interpersonal retail relationships and groundbreaking technology to meet retailers' growing demands. "[Consolidation] has shifted the retailer-supplier relationship pretty substantially over the last three years," says Silbermann. "It's gone from 'this is what need' and 'what's your price' and 'when can I have it' to all the ancillary things that surround produce purchasing relationships, such as food safety, technology components, logistics requirements or packaging."
This transition, however, is not without its growing pains grow·ing pains
Pains in the limbs and joints of children or adolescents, frequently occurring at night and often attributed to rapid growth but arising from various unrelated causes. for traditional grower/shippers, even big produce conglomerates. "One of the beauties of the produce industry is that it's incredibly dynamic," says Silbermann. "You're dealing with a crop that changes week to week, sometimes day to day. Produce firms have always been very nimble. So I think there will be a constant testing of new approaches and partnerships.
"I think that the family ownership issue is going to continue to play a strong role. It's one thing for a large, public company like a Dole, Del Monte or Fresh Express to have less of a focus on the people involved in business, but it's still tough for a lot of produce companies to break away from family history and their co-workers. There's a lot of pride in the business they run. That's not good or bad. It's simply a statement of fact."
Del Monte's motto asserts that it is a big company that acts small. "The challenge for all of us is to be centralized for cost efficiencies yet take advantage of niche markets and local opportunities," says John Loughridge, vice president of marketing, Del Monte Fresh Produce Co., based in Coral Cables, Fla. To do this, Del Monte is adding local field merchandisers and building a national network of localized fresh-cut facilities -- to develop a network of distribution centers and ripening ripening
said of meat. See curing. facilities that complete product lines.
Adds Loughridge, "In case someone [retailers] gets caught short, they are only a short phone call and a drive away. As things become more consolidated, there are more opportunities for us to provide additional services along with our products. We try to offer the advantages of a global company that grows in 14 or 15 countries and sells in 50, but also be very local. So if you call us today, we'll cut your fruit up this afternoon and deliver it tomorrow morning. That's really our business model." He predicts the next 12 to 18 months will prove interesting as recently consolidated retailers complete internal restructuring.
As Del Monte tries to stay in touch with its roots, Sunkist, the largest U.S. citrus supplier, doesn't hesitate to take advantage of its size and strength. "Consolidation has forced us all to look at where the true costs are within the distribution system that should be eliminated," says Robert Verloop, director of marketing, for the Sherman Oaks, Calif.-based company. "Over the next five years, we're all going to be more focused on eliminating non-value activities and shifting our emphasis to how do we build value, consumption. You have to do it with key partners that have the capabilities within their organization to do that. Obviously the larger vendor/suppliers that have consolidated, I think, make a better trading partner for the retailer and ultimately for the consumer because there is greater control of quality."
Sunkist supplies retailers with value-added information on category management, logistics, consolidating of loads, package design and styles and vendor management inventory systems. It also creates marketing plans, obtains longterm commitments for vending and pricing, provides true forecasting services and helps turn consumer information into tactical programs at the retail level. "These consolidated retailers are asking for additional or new ways to present their product to consumers," says Verloop. Electronic technology, such as electronic data interchange See EDI.
(application, communications) electronic data interchange - (EDI) The exchange of standardised document forms between computer systems for business use. EDI is part of electronic commerce. (EDI (Electronic Data Interchange) The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. ), cross docking, case coding and vendor management, is currently used on less than 10% of produce purchases, notes PMA's 2001 Fresh Track. Yet, industry observers expect it to play a larger role as technology advances.
In the future, Verloop expects more branded items to be carried in retailers' produce departments, and for vendors to help with the packaging and merchandising of these products. "Obviously as retailers develop single banners, they want a consistent look within their stores," says Verloop. "A branded product line gives them an opportunity to be consistent all the way through. Part of the brand value that we or any branded company bring is a higher perception of product value. Everyone wants to elevate that value proposition. As consolidation continues, the larger companies that have the volume, market, dollars and strong brand presence become an even more important vendor partner."
On the other hand, some growers are finding that it's better to be the Jet Blues of the produce industry than the United Airlines. Staying small, rather than mid-sized, enables these growers to better follow market trends and/or specialize in a niche. "Be unique in what you grow, pack, ship and brand," says Dick Spezzano, president of Spezzano Consulting Service Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.)
service - work done by one person or group that benefits another; "budget separately for goods and services" and past chairman of PMA, based in Monrovia, Calif. "You don't want to be caught in between [large and small suppliers] because you will have less choices in who to sell to. Because you don't sell Safeway, then you don't sell Dominick's or Vons. Consolidation forces the grower/shippers to become much more sophisticated than they once were."
Local, niche growers offer qualified information and a human touch in service. The move to centralized buying won't erase the need for multiple suppliers of commodities to ensure product consistency and quality. "After all, the produce industry is not a manufactured process per se," says Bowden. "We're still at the mercy of Mother Nature to a great extent. There's not any sort of silver bullet silver bullet - magic bullet that will make your product and offering to the buyer unique and totally different, but I think there are a number of things that companies can provide: quality, consistency, value, reliability, delivering on promises."
Regional or independent retailers, in particular, value the help of local suppliers to "set themselves apart from the competition through their perishables departments in order to maintain their share of market," says Jan DeLyser, vice president of merchandising, California Avocado avocado (ä`vəkä`do, ăv`–), tropical American broad-leaved evergreen tree of the genus Persea of the family Lauraceae (laurel family). Commission (CAC See Consumer Advisory Council. ), based in Santa Ana, Calif. "Competition amongst retailers (chains, supercenters, club stores, regional and independents) has created ongoing strategic positioning. They must increase their value to the consumer. To do this, they rely more on 'partnering.'"
Within the avocado industry, for example, growers have found an opportunity to provide category data and sales, merchandising and promotional information. "Moreover, they [retailers] want ongoing feedback to assist them in achieving their goals," says DeLyser. "The opportunities exist to help manage the direction of the category through category development and planning. There is a more direct route to retailers. Traditionally the connection at all levels has resulted in successful implementation of programs that drive sales."
Some "shipper SHIPPER. One who ships or puts goods on board of a vessel, to be carried to another place during her voyage. In general, the shipper is bound to pay for the hire of the vessel, or the freight of the goods. 1 Bouv. Inst. n. 1030. innovators" are teaming up with retail buyers, but this is still an early phenomenon. More likely, produce suppliers are forming alliances, often on a global basis, and creating marketing agreements, joint promotions and co-marketing ventures with other suppliers. For example, Global Berry Farms was formed by the Michigan Blueberry Growers (MBG MBG Missouri Botanical Garden (Saint Louis)
MBG Molecular Biology and Genetics (Cornell University department)
MBG Money Back Guarantee
MBG Matthaei Botanical Gardens (Ann Arbor, MI) ) Marketing group and Chilean-based Hortifrut, S.A. to provide year-round berry selection. As retail companies become more global, it makes sense for them to put together year-round relationships, notes Silbermann. If they are contracting Chilean shippers, why not form agreements with American, European and Asian suppliers as well?
As more products are offered on an annual basis, it doesn't necessarily take a larger supplier to do business with retail. "The supply side is forced to plant and grow those [year-round] items themselves or develop strategic alliances of some sort with other growers and shippers both domestically and globally," says Spezzano. "So, as an example, if you are a Northwest pear grower and your larger retailers want you to supply pears on a year-round basis, then you develop strategic alliances with growers in California, Australia, Chile, South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. . Buyers' requirements have forced the growers and shippers to look at their business and to get a little more sophisticated in how they view it, try to get more technology into their business, and again consider how to get bigger without putting more acreage into production."
B2B exchanges promised to level the playing field for produce grower/shippers. So far, that has not been the case. For the most part, exchanges remain largely unused unless a retailer requests doing business on them. But don't count out e-commerce just yet.
"B2B is enhancing relationships, but it is not about the e-commerce everyone got excited about a few years ago where it felt like an auction system," says Verloop, an early pioneer of B2B exchanges at Buyproduce.com. "This is about backdoor See trapdoor. , backroom back·room
n. or back room
1. A room located at the rear.
2. The meeting place used by an inconspicuous controlling group.
1. ability for systems to talk to each other in a seamless way, so that you're not having to spend man hours chasing down details. The systems are aligned in such a way that we can transact without having to communicate."
In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified"
meantime, meanwhile , tangible technologies, such as EDI, do bring smaller and mid-sized produce growers to the bargaining table. "More companies have shifted from an approach asking 'why are these silly retailers asking me to do all these things' to 'how can I position myself best to provide these additional things that the buyer wants in a way that no one else can?"' says Silbermann. "There may be 20 firms that can provide avocadoes to a major buyer. But if I am able to handle the requested technology and have year-round supply, provide ripening services on a regional basis, and handle packaging and returnable RPCs, I'm just raising the bar for all my competitors. And it's no different than what grocery manufacturers have done for years.
PMA's Fresh Track notes that small-firm produce buyers report using more suppliers today than five years ago and anticipate greater reliance on even more suppliers in the years to come. Indeed, a 2001 USDA USDA,
n.pr See United States Department of Agriculture. study on retail consolidation found that while some produce marketers may have lost some retail customers, they still dealt with the same amount of buyers because they had found new retail business and/or targeted foodservice customers. "I'm very optimistic op·ti·mist
1. One who usually expects a favorable outcome.
2. A believer in philosophical optimism.
op about the future of business for those suppliers that step up to the plate and continue to meet the demands of retailers and foodservice companies. Scale is important, but it's not the only criteria for success," says Bowden.
Number of retail produce buyers Buyers per firm (1999 and 2001) 1999 2001 Headquarters 3.0 2.5 Division/regional 4.6 4.5 Field 2.6 2.7 Total 10.2 9.8 Source: "Fresh Track 2001: Supply Chain Management," Produce Marketing Association Note: Table made from bar graph Retailer vs. grower/shipper views on the impact of consolidation Retailers Grower/shippers * Less emphasis on price * More price focus * New suppliers * Fewer customers * Increased vendor partnerships * Less retailer loyalty but better partnerships * Stronger retail focus * Each retailer wants own package * More grower/shipper responsibility Source: "Fresh Track 2001: Supply Chain Management," Produce Marketing Association Use of selected electronic technology: All retailers, 2001 and 2006 Percent of produce purchases 2001 2006 Electronic Data Interchange 9.3 32.8 Vendor Managed Inventory 5.1 12.6 B2B e-commerce 2.0 17.0 Source: "Fresh Track 2001: Supply Chain Management," Produce Marketing Association Note: Table make from bar graph