Want to know the state of the produce industry in 2016? True 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.