A Skin in the Game

Don Harris - Retail Perspective

Occasionally, during the Monday morning meetings, the subject of supply and availability of product is brought to light. In these discussions, management always talks about the need to commit in advance for many of the grocery-type products to ensure supply and the best cost. In their part of the discussion, produce personnel bring up the potential of doing a similar activity in their area. Management typically replies: “We already contract for our bananas and salad mixes; what other commitments do we need?” This type of reply only goes to show that once again, management “just doesn’t get it!”

don-harris-retail-perspectiveWhile present in most parts of the retail establishment, contracts and advance commitments are not as predominant in produce. The overriding strategy in this area is to take advantage of seasonal, weather, and oversupply situations to make sure they get the best possible cost from downward changes and declines in the market price. Management often thinks tying themselves down in a contract would eliminate these opportunities for “special buys.” This type of “old school” thinking is shortsighted, and it will eventually affect these retailers’ abilities to be competitive in the future.

Times are changing in the produce landscape, and more advance planning and “risk taking” will be needed to maintain a competitive edge in the marketplace. Those who are slow to realize this trend will be left behind the progressive retailers who embrace these concepts and utilize them in their everyday strategy.

The innovative retailer will look beyond simple commitments and traditional contracts with vendors and suppliers to more advanced commitments. These types of commitments include the “sharing of risk” with the vendors and suppliers on the investment in the planting and harvesting of a specific crop.

These types of arrangements essentially have the retailer committing to take the total production generated from the growers’ planting and production in advance of harvest. This is a win-win situation as the grower has a “partner” in production plans and a “guaranteed” market for the crop. For the retailer, it allows effective planning for moving the crop and also encourages growers and shippers to grow crops that enhance variety or are extremely popular with the consumer. For them it “guarantees” a supply of product exclusively. This type of sharing in the risk inherent in the production of product provides that both parties have a vested interest, or if you will, “skin in the game.” They will mutually share the risks of weather, market conditions, and all other factors that affect the production of a crop.

With the emphasis on food waste and better crop utilization growing throughout the world, this type of arrangement between buyer and seller will continue to grow within the industry. This trend could mark the end of large overproduction of various commodities from the old notion that we have the opportunity to make money by growing for potential market conditions favorable to making a profit.

The innovative retailer will look beyond simple commitments and traditional contracts with vendors and suppliers to more advanced commitments.

Many times, the industry shows a propensity to overplant an item that enjoyed a profitable year or two, creating these types of oversupply situations and the accompanying low markets and waste. As the pressure increases from consumer groups and the government to decrease the amount of food wasted, the produce industry throughout the world will need to respond as to how reduction in excess production will be accomplished. In a free-market economy where the entire world is involved, this will prove to be very difficult as nations compete with each other for commodity market share.

By utilizing new strategies, like the one I discussed, enlightened, progressive retailers will form the vanguard of leadership in this important area. A cooperative effort of sharing the risk that the grower undertakes each time he plants a crop will create an atmosphere of better crop utilization by planting and producing produce closer to actual demand, while avoiding oversupply, low markets, and food waste.

While this type of strategy goes against many of the time-honored principles of produce procurement, it has proven to be a viable strategy through the efforts of progressive retailers. What is required is essentially a mindset change to allow retailers to take a risk and put “skin in the game” instead of having the growers shoulder all of the risk.

Change of mindset and breaking with traditional ways of operating are not easy or comfortable to the produce industry, but it must happen if we are to reach our goals of sustainability and proper stewardship of our environment. The benefit of such a strategy is the continued success of our retail and growing operations and a more responsible and collaborative approach to bringing more fruits and vegetables to our customers while reducing food waste.

Don Harris is a 40-year veteran of the produce industry, with most of that time spent in retail. He worked in every aspect of the industry, from “field-to-fork” in both the conventional and organic arenas. Harris is presently consulting and is director of produce for the Chicago-based food charity organization, Feeding America. Comments can be directed to editor@producebusiness.com.