Originally printed in the January 2018 issue of Produce Business.
With the arrival of a new year, it is always wise to review what has happened before and apply the experiences gained to the challenges that lie ahead. The New Year always brings a new plan by management to attain their goals in terms of profitability. These plans are drawn up to meet the goals that are set forth for company success and the expectations of upper management. These projections are carved in stone and are not flexible, and management will follow them without exception, regardless of the needs and necessary support for the individual operations within the store. With this attitude, once again, they are proving that ‘they just don’t get it!”
When 2018 starts, good retailers will look at their operation and evaluate its strengths and weaknesses to determine what strategy to use to accomplish the goals set for the operation. The better retailers follow this course to the highest degree, and look at any and all other alternatives that might be able to accomplish their goals without following a standard course. The most prevalent course in retail today is to merchandise and sell product at a price that provides the required gross profit to make the targeted profit goals. Given the results of the past few years, it seems this strategy is a bit shortsighted and misses the target of every operation, which is successful growth and sustainability of the operation. Pricing product to gain gross profit margin at the cost of stagnant, or even negative, growth of volume is a recipe for failure and is a very difficult proposition to sustain growth. This strategic direction is popular due to the financial point of view of upper management so they can report glowing profit numbers to the industry. It is not a strategy designed to move a produce operation to the next level.
To gain the kind of sustainability that will be needed in the future for a produce operation, successful retailers will look to lessons learned in the past, including some of the basic, successful concepts in retail. The top adage in retail is that “Top line sales are the life blood of all retail operations.” Number two is “the purpose of retail is to sell things.” These two guiding principles allow for the sustainability of an operation by generating more sales by selling more things. This strategy also generates additional profit dollars (not percentages) that can be applied to the departmental goals. The “more product you sell, the more profit dollars you make,” is a simple assumption to be drawn from this strategy. The key here is to price your items to sell, and not to make margin. This action presents your customers with a “value” proposition that encourages additional consumption.
It would seem to be the smart play for successful retailers to avoid the trap of arbitrarily raising prices to make margin percentages and move to a strategy of consistent pricing and sustained growth.
This is a path to sustainability by maintaining and utilizing consistent pricing to drive sales volume and thereby reach major profit goals. The alternative, which we have discussed previously, is an unsustainable, upward spiral where prices continue to increase to provide the needed margin at the sacrifice of volume. This could eventually reach a point that places fresh produce out of the reach of the average consumer. There are some indications that this situation is happening in some areas in Europe, where the middle-class believes fresh produce is priced out of their reach in terms of weekly consumption. It would seem to be the smart play for successful retailers to avoid the trap of arbitrarily raising prices to make margin percentages and move to a strategy of consistent pricing and sustained growth.
A shift to this sort of strategy goes against the flow presently utilized by most retail produce operations. However, such a switch is necessary to provide sustainability of operations and help to ensure future growth. Increasing consumption would be supported by a strategy that seeks to sell more products at consistent prices, thus generating the needed profit dollars and maintaining access to fresh produce for as many customers as possible. Produce operations presently utilizing this type of strategy and pricing consistency seem to be enjoying growth and success on a consistent basis. It seems that a good look at what has happened before and a review of what we are trying to accomplish would provide the basis for a sustainable, successful growing produce operation. Actions in this vein would go a long way in providing the base for a sustainable retail produce industry.
Don Harris is a 41-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 [email protected].