The Produce World Of 2016: Power Shifts To Producers

Jim Prevor - The Fruits of Thought

Want to know the state of the produce industry in 2016‭? ‬ Jim Prevor - The Fruits of ThoughtTrue story‭: ‬A California grower/shipper‭, ‬one of the largest in the world‭,‬‭ ‬meets with an old friend who works for one of the largest produce buyers on earth‭. ‬The buyer asks the seller‭: ‬“So‭, ‬what can I do for you in the new year‭?‬”‭ ‬The seller‭, ‬without missing a beat‭, ‬responds‭: ‬“If you really want to do me a favor‭, ‬then give me less business‭.‬”

He wasn’t joking‭. ‬And the buyer was genuinely scared‭, ‬because he knows there is no place to lay off a third of his order‭. ‬There is no place to lay off 5‭ ‬percent of his volume‭.

Some of this is temporary‭ ‬‮—‬‭ ‬a function of weather‭, ‬which could be different next quarter or next year‭. ‬But some of it is a function of the high cost of inputs leading growers to dramatically reduce the amount of product grown on speculation‭. ‬It is increasingly the case that every acre planted is planted because the product expected to grow there already has a pre-committed home‭. ‬That means that there is no product available for those who have not pre-committed‭.

Beyond costs‭, ‬the reality is inputs are increasingly scarce‭. ‬It is not easy for a grower to get more land that is suitable for growing‭, ‬more water where it is needed‭, ‬or more labor to harvest and pack when it is required‭.‬

Combined‭, ‬this is a revolution in the produce industry‭, ‬and for all the talk about how consolidation at retail gives buyers a stranglehold on producers‭, ‬that notion is increasingly not aligning with reality‭. ‬There are countervailing forces‭, ‬there always are‭. ‬In fruit‭, ‬particularly‭, ‬increased global trade serves as a pressure valve that relieves some of the difficulty associated with the inability to secure more inputs‭. ‬After all‭, ‬there may not be land‭, ‬water or labor nearby‭, ‬but it may exist elsewhere‭. ‬

On the other hand‭, ‬especially with fruit‭, ‬there is an overwhelming force that is enormously increasing the power of vendors‭: ‬Buyers are specifying particular genetics‭. ‬This is a game-changer‭. ‬There may be product around‭, ‬but it is not the product that the‭ ‬buyers want‭.‬

For all the talk about how consolidation at retail gives buyers a stranglehold on producers, that notion is increasingly not lining up with reality.

Sometimes this is because consumers have their own preferences‭. ‬Indeed‭, ‬with the growth of managed varieties‭, ‬we see a growth in‭ ‬branding‭, ‬and we can predict more effective branding in the future‭. ‬Branding has always been weak in the produce industry because the core product was always a parity product‭, ‬so the retailers always sold just one brand‭ ‬‮—‬‭ ‬Chiquita‭, ‬Dole‭, ‬Del Monte‭, ‬or another brand of bananas‭, ‬for example‭ ‬‮—‬‭ ‬but no retailer offered a selection of each from which the consumer could choose‭. ‬This is very different from grocery sales of mustard or cereal where it is common to offer dozens of brands‭.‬

But if we look at various Club varieties of apples‭, ‬such as SweeTango‭, ‬Kanzi‭, ‬Envy‭, ‬Ambrosia‭, ‬Jazz‭, ‬etc‭., ‬it is easy to see retailers selling each of these brands next to each other‭. ‬Most of these brands remain severely under-marketed‭, ‬and many state universities that are doing breeding are not looking at the global reality‭, ‬and thus the need for careful worldwide management of production‭. ‬Still the prerequisites‭ ‬‮—‬‭ ‬proprietary genetics and unique brands‭ ‬‮—‬‭ ‬are there for a marketing revolution‭.‬

Today‭, ‬though‭, ‬the retail preference is expressing itself not so much by feeling compelled to carry each brand‭ ‬‮—‬‭ ‬that may be the‭ ‬future‭. ‬Today‭, ‬the desire is to carry the best stuff‭. ‬There are lots of retailers who go to great lengths to stock Driscoll’s blackberries and raspberries‭, ‬because they believe the genetics are superior‭. ‬It is a global phenomenon unrelated to branding‭.‬‭ ‬Go to the United Kingdom and at least one major retailer is demanding‭, ‬in season‭, ‬the Viva variety of strawberry from Poupart Limited’s BerryWorld‭, ‬even pushing for it to be included in its fresh-cuts‭.‬

The significance of this to the dynamics of the industry is hard to overstate‭. ‬Dozens of academics and consultants are literally‭ ‬charting how retail consolidation is proceeding faster than producer consolidation‭, ‬and interpreting this as a rise in retail power‭. ‬But if the retailer only wants Driscoll’s raspberries‭, ‬then the relevant universe of producers is exactly one‭, ‬and you have multiple buyers vying for the favors of one‭ ‬vendor‭.‬

For growers‭, ‬having the‭ ‬“right stuff”‭ ‬is no easy task‭. ‬Most producers grew up in a world where university breeding programs or seed companies made all varieties available to those willing to pay for the seed or the root stock‭. ‬Now‭, ‬the go-to market strategy must include the varieties buyers want‭. ‬Securing these varieties means investing in varietal development‭, ‬purchasing exclusivity‭, ‬or joining some type of club/licensee group‭.‬

So in 2016‭, ‬anyone intending to be in business in 10‭ ‬years should have the following as priority No‭. ‬1‭ ‬in their strategic planning‭: ‬“How will our company secure the rights to the products our customers will want to buy‭?‬”‭ ‬Without these rights‭, ‬a company will be consigned to second-tier status‭. ‬That won’t be a very profitable place to be‭.