A combination of post-consolidation factors are compelling retailers large and small to implement strategies that are shaking out new efficiencies in today's global produce-supply chain.
Perhaps most importantly, the changing retail landscape finds an increased reliance on a stable of trusted suppliers as product experts means more grower/shippers are making the buying decisions supermarkets used to make, retailers and industry experts said. Internally, retail buying staff is being trimmed.
"It's a fact of life that we're all trying to do more with less and that's helped to modify the way we buy produce," said Ron McCormick, vice president of produce merchandising for Wal-Mart Stores, Bentonville, Ark. "There's a growing tendency to want to buy from a limited number of people and use them day in and day out, rather than going through the Blue Book [the produce industry credit rating and supplier guide]."
Two years ago, Northbrook, Ill., independent Carrot Top turned to a service wholesaler to supply some of its produce needs. In a sense, it marked the end of an era for the upscale market that has carved a successful niche in produce and perishables retailing in the Chicago suburb.
"My thought at the time was that if you had told me 10 years earlier I'd eventually be working through a service wholesaler I would have laughed," said owner Jim Corrigan. "I was raised in the produce business, where you had to know the product, the seasons, the growing areas, when things come on, the varieties -- everything. If you weren't buying from a personal knowledge standpoint, the thought was that you couldn't compete."
But the realities of business dictated new rules. Corrigan found that buying trips to the rapidly shrinking Chicago terminal market were becoming less productive, and setting up important ad deals alone bordered on impossible, he said, noting the primary factors in his decision to hand some of his buying to an outside vendor. Today, while he still dabbles in some local and direct buying himself, Corrigan leaves a substantial share of the day-to-day buying decisions to the wholesaler, who also contributes valuable merchandising assistance.
A similar shift in thinking now appears to be taking place in the slimmed-down produce buying offices of even the big national supermarket chains. Though hardly relying on local produce houses or traditional middlemen for much more than a fraction of their needs anymore, these buyers are also looking to put as much of the procurement function as possible on an autopilot of sorts, giving the stick to large, multifaceted growing and shipping organizations that can serve as complementary links in an efficient, reliable and cost-effective supply chain.
Cagey, street-smart supermarket buyers who cut their teeth deals at the terminal market and later boasted of "buying direct" from shippers and handling all of the related nitty gritty are fast becoming a memory, industry veterans have observed.
"Supermarket buyers don't seem to be shopping around as much any more, calling this guy and that guy and comparing prices," said Ed Odron, a former supermarket produce executive who now operates Ed Odron Produce Marketing and Consulting, Stockton, Calif. "Now they seem to be settling in with growers and shippers who they can trust to deliver on a consistent basis at the right price and to be there when product gets tight."
Industry experts point to a number of issues, unique to fresh produce, that are propelling retailers to shift more responsibility to a select few qualified suppliers -- such as perishability, wide quality variability and a myriad of sources both domestic and foreign, to name a few.
"Retailers today are looking for all kinds of products, but they're often so overwhelmed at just getting the job done of managing a multitude of stores that it doesn't always come together," said Bruce Axtman, chief executive officer of the Perishables Group, a Chicago-based consulting group that counsels retailers and their suppliers on strategies. "So they're reaching out and looking for suppliers who can help them get where they want to go. The business has become a lot more complex, but they're having to conduct it now with a lot fewer people."
But just like other classes of supermarket vendors that are having to run a gauntlet to get the business, produce marketers that want to be a part of an increasingly small core of select vendors are having to prove their mettle in new ways.
"It used to be that produce suppliers were judged on availability, quality and price," Axtman said. "Now those are a given. The criteria now include a range of other things, including the breadth of the product they can source, the different growing areas they can tap into, the ability to offer category management services and even cold-chain management for the product."
Wal-Mart's McCormick said it's essential for his produce suppliers to have EDI and information-sharing capabilities, which serve as the backbone of all-important category management. And, relying as it does on providing sensitive data on a two-way basis, category management argues for keeping the supplier base small.
"Category management is a much easier task to accomplish if you're dealing with the same supplier on a consistent basis, especially if you're sharing an informational database or shared third-party support," he said.
For supermarkets assembling a more hands-on produce supplier base, a key challenge is selecting companies that may have different, yet complementary capabilities. The inherent complexity of procuring a highly perishable product from all parts of the globe, at all times of the year, demands that those responsible for produce buying think more in terms of a well-oiled supply chain than in individual suppliers, observers told SN.
The evolving system makes a small supplier base all the more important, said Roger Blackwell, a retailing and marketing expert at Ohio State University. But even more critical is the ability of supermarkets to mesh suppliers who have expertise in areas ranging from international sourcing and transportation, to production and packing.
"Competition in the business isn't about chain vs. chain anymore, as much as it is supply chain vs. supply chain," said Blackwell. "The key to understanding where or whom to buy from is a careful analysis of which function can be performed best at each level, and determining where those functions will shift is vital. It's not a situation where you can just call up one supplier to get it all done in produce."
Yet, difficult as it is for one supplier to be a one-stop source, some of the bigger operators are trying mightily to further expand their capabilities so they can "stay in the game at all costs," according to McCormick. And certainly some of the larger chains are on the lookout for those that actually can perform multiple tasks. Just as retailers have grown through consolidation, many suppliers are getting larger as well, doing so through acquisitions, or forming partnerships and alliances, in a bid to capture more business.
A frequent motivator behind supplier-level business activity has been directed at gaining more access to internationally grown, organic and fresh-cut produce. At store level, suppliers are gunning for the supermarket business by displaying their versatility, according to Steve Duello, director of produce operations for the 18-store Dierbergs Markets chain in suburban St. Louis. It's a quality he and other retailers increasingly value.
"For instance, they all seem to say they have the contacts offshore to bring in whatever you might need," Duello said. "They have the relationships set up where they can walk from one season or growing region into another with a minimal amount of contact with the retailer required. So there's definitely more emphasis for us on finding shippers and growers who can handle the whole shooting match. Every single person you have to deal with takes more paperwork and that's what we want to avoid."
What can't be avoided, though, is the fact that produce buying in the future will still require a strong dose of the personal touch that's characterized the marketplace over the years. Although larger retailers will be dealing with ever-larger suppliers, those resulting relationships will still have to be nurtured by both parties for the needs of each to be met, noted Odron.
"In this climate, relationships are going to be even more important than in the past," the consultant said. "The notion of partnerships will continue to be very strong and retailers and grower/shippers will have to concerned about the well-being of each other."