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It’s a Whole New Ballgame in the Produce Biz, Thanks to the Power of
Consolidation
By Tom Karst
[The following copyrighted article, originally published as "A New Way to Buy," is reprinted by permission from Global Produce, July/August 1999, p. 22. Global Produce does not review or endorse products, services or opinions.]
Every part of the produce supply chain is changed by consolidation. Fewer, larger buyers are working with fewer, more capable vendors. After the recent wave of mergers and acquisitions, the top 10 food retailers in the United States account for 50 percent of sales. A study by Rabobank in Holland suggests there may be only 30 buying points in Europe within a few years. The wants and needs of the consumer–rather than the realities of the supplier–will dominate buying trends in the years ahead.
Look for suppliers who have access to a wide variety of growing regions and markets. Those companies will be in a strong position to match quality and size requirements to each market.
"Global consolidation offers retailers the option to reduce their number of suppliers in favor of those who are able to offer consistent year-round supply, drawing from sourcing areas around the world," says Craig Stauffer, president and chief executive officer of Vanguard Trading Services, Issaquah, Wash.
First the telephone and then the fax machine allowed buyers tremendous flexibility in choosing suppliers and supply regions. Now digital information technologies allow an even closer relationship between buyers and sellers. Retailers lean on suppliers to provide them with crop outlook and pricing information.
Suppliers who can talk intelligently about their customer’s business are in demand. For example, an importer of Chilean grapes should be able to tell his retail customer about consumer demand for red globe grapes at various price points throughout the season.
Responding to buyers benefits suppliers.
"Our produce business is growing at 20 percent and a large part of that is due to some of the things our retailers have pushed," says Conrad Johnson, director of international produce, C.H. Robinson Worldwide, Inc., Eden Prairie, Minn.
Operational excellence and vendor partnership are two themes. Johnson says it is the job of the "vendor ally" to take point-of-sale data and perform analysis for the supermarket.
"It is in our interest to get their category up by 20 percent," he says.
Looking to the Future
Exporters and suppliers with a year-round global supply chain should be in the best position to meet changing buyer needs, says Phillippe Binard, general delegate with the European Fresh Produce Import Association (CIMO), Brussels, Belgium.
"What is sure is that the consolidation of the retail level is requiring those that are part of the chain to adjust according to the changing retail buying pattern," Binard says. The adjustments include various kinds of relationships between buyers, distributors and sellers, he says.
Luis Moreno, president of Grupo PM, Morelos, Mexico, says retailers in Mexico want to increase purchases from larger growers and suppliers.
"Some chains already have master warehouses, as is the
case of (regional chains) Casa Ley and Soriana," he says.
In addition, Moreno says some wholesalers are turning into full-service sales and marketing suppliers, switching from handling only a handful of items to perhaps 30 to 40 items.
"Every link in the marketing and distribution chain faces increasing competition, now and in the future," Stauffer says. Market windows and product niches will narrow–with more competition all around.
While consolidation on the supply side has not been as evident as the high-profile news of retail mergers and acquisitions, it inevitably will happen as the larger buyers reduce their number of suppliers.
For example, with some commodities, buyers may decide they need only four suppliers. Other commodities may require just one. All buyers will seek suppliers who have an array of products throughout the season and throughout the year.
Bruce Axtman, vice president of Willard Bishop Consulting, Ltd., Barrington, Ill., says the new global buying and selling environment will result in new relationships. These could be the result of merger or consolidation, informal alliances or partnerships, Axtman says.
The formation of new alliances will be especially evident among handlers of seasonable commodities like grapes and tree fruit, who will seek to extend their contra-seasonal supply. Alliances between southern hemisphere and northern hemisphere producers are likely to grow, he says.
"We will see natural alliances where a major player in the United States can align himself with players doing similar things internationally," he says.
Of course, multinational corporations like Dole, Del Monte and Chiquita have long been involved with global sourcing. Now, other exporters are also expanding their influence.
"Many companies have spread their sourcing capabilities beyond their founding headquarters, beyond their borders," Stauffer says.
Johnson says C.H. Robinson has become a year-round supplier for Latin American wholesalers through the use of global supply sources.
"We’ve tried to become (Caribbean wholesalers’) year-round suppliers," he says.
Stauffer says retailers now have their choice of competing regions for nearly every product line. Only those suppliers with the personnel and skills to adapt to buyers’ changing needs can provide superior levels of service and information.
Focus on the Consumer
In the United States and
Europe, suppliers will be called on by retailers to help build
and manage produce categories, Axtman says. They will leverage
the amount of business they do with large supermarket chains and
invest to increase it.
Supermarkets will use suppliers who help build their sales, Axtman says.
Douglas Henderson, chief executive of Britain’s Fresh Produce Consortium trade group, Covent Garden, London, England, says consolidation is a positive development because it will force the supply chain to focus on the consumer.
"There is disclosure of information on market shares, financial profit margins, financial returns," he says. "It is very different and a much more mature sort of relationship rather than the confrontational haggling over prices," he says.
Buyers may be less likely to switch suppliers because of category management ties. A greater understanding of mutual problems can accompany new trends, Henderson says.
"You are getting the benefit of competing in the supply chain without vertical integration through direct ownership," he says. "You can retain competition [but still enjoy mutual advantages]..."
Creating niches in a category for super-premium, super-nutrition hybrids could expand the influence of individual suppliers, Axtman says.
New products and niches will increase the sophistication on how to build categories and will shift the focus to the consumer. Seed companies may leverage research in biotechnology to create produce that meets special consumer needs for nutrition or taste, he says.
Binard says new supplier-buyer relationships will require a closer link. For example, retailers need a system that allows them to trace back fruits and vegetables to packinghouses and farms.
Nick Kukulan, president and chief
executive officer of Paramount Export Co., Oakland, Cal., says
the management of a supermarket’s supply
chain–connected through computers–will result in more
durable relationships between suppliers and buyers.
"It takes a chain of supply that can comply with all the details, and it is not like a buyer can jump from supplier to supplier on a whim," he says. This will enable buyers to be more responsive to consumers but will limit the ability to shop on the basis of price.
A Place for Importers
With the inevitable consolidation of retailers and suppliers, importers and wholesalers also will be under pressure to provide services to the supply chain. They may fill that role by dealing with the details of importing product and providing category management assistance.
"Service will be the critical ingredient for success," Stauffer says.
In the United States, where massive distribution centers allow for large-volume direct imports, supermarkets still frequently use importers.
Although long-term buying trends favor direct importing by supermarkets, Kukulan says supermarkets want fruits and vegetables with no quality problems delivered to their door. This leaves an important role for the importer and wholesaler.
Binard says the CIMO Congress, October 7-8 in Brussels, Belgium, [would] be dedicated to the topic of consolidation. The structure of trading companies in the next decade may change significantly in response to globalization, he says.
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The author is an editor at Global Produce. Tel.: (913)
438-8700; fax: (913) 438-0691; E-mail: tkarst@globalproduce.com
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