Just where the balance may lie, no one can be sure, but wholesalers want to align with consumer behavior as experienced by new retail operators and new technologies.
Originally printed in the March 2021 issue of Produce Business.
Produce wholesalers found their sector changing at a fast pace influenced by technology and changing consumer preferences even before the COVID-19 pandemic struck, but those who were working to change with the marketplace found themselves in a position to respond to the crisis and, potentially, thrive as it wanes.
Although each experience of the past few years is unique, a common theme emerges in that wholesales who became more flexible and agile before the coronavirus crisis struck have been able to adapt both internally, as they take steps to keep their employees safe, and in supporting customers by making rapid shifts in focus, sometimes on a daily basis, to keep product moving and bonds with customers strong.
“In a lot of ways, I think the natural shifts in the marketplace prior to the pandemic prepared us for the situation we find ourselves in,” says John McClelland, CEO of Liberty Fruit Co., Kansas City, KS. “Non-traditional retail formats have come in, along with meal kits, home delivery models, surging organics continuing to gain popularity. We saw what Amazon was doing and what our customers were doing, and what we needed to be doing from an interactive perspective. We’ve been adapting, aligning to meet the new demands.”
As such, McClelland says the arrival of the coronavirus crisis saw Liberty Fruit as prepared for something it couldn’t see coming as it could be because it had become a more agile wholesaler in a class of business that, by its nature, is prepared to meet diverse challenges.
According to Dominic Russo, buying and sales manager of Rocky Produce, Detroit, MI, prior to the COVID-19 outbreak, the main problem the wholesaler faced was labor shortages, particularly finding truck drivers, but otherwise, things were going well. Then things changed.
“COVID hit, and it became much more challenging,” he says.
Changes already happening in the market, such as home delivery, meal boxes and organics, had an impact on Rocky Produce but it was gradual. When coronavirus hit, that evolution gave the company some advantage, but he said the biggest factor that helped the response was the basic business model of wholesalers, one that involves response to changes in the marketplace, some predictable, some not.
As such, as vaccinations have begun and a light at the end of the tunnel seem evident, Russo says, “Business in general has been very good.”
A lot of things changed before anyone ever heard of COVID-19. Environmental and related social issues, such as fair trade, had become much more significant, particularly as Millennials have favored companies that addressed those sorts of issues. As such, retailers and wholesalers had to reconsider practices. S. Katzman Produce, located in the Bronx, NY, was one of those companies, and packaging was a particular issue.
“Over the past several years, we have seen an increased demand at the consumer level for sustainable packaging,” says Stefanie Katzman, the company’s executive vice president. “Consumers have been holding retailers to a higher standard when it comes to packaging by demanding eco-friendly materials, reduced waste and minimal to no packaging.”
The retail scene had been changing appreciably for decades, but after years of stores selling food getting more prominent, smaller neighborhood grocery operations had become more important as convenient and, sometimes, specialized alternatives to big supermarkets, warehouse clubs and supercenters. With consumers increasingly concerned with wellness, smaller store formats have focused on a combination of ease of shopping, value and healthy eating. Indeed, wellness and offering healthier food have become more important in channels not usually associated with their factors, and consumers have had a positive response in many cases, including convenience store chain such as Wawa, and those that have developed sandwich-based and other fast and takeaway food businesses where salads and other healthier alternatives are on the menu.
Many of these non-traditional retail outlets have created another layer in edibles retailing even more compact than Lidl, Aldi, Trader Joe’s and other smaller scale grocery operations. Supermarkets and mass market operators, even Amazon, have been creating small format food stores. That being the case, wholesalers have new market factors to consider.
“Being located in a densely-populated and diverse area, there is a large array of ‘alternate’ independent retailers for consumers to choose from, like mom-and-pop farmstands and ethnic retailers with a handful of locations,” says Emily Kohlhas, director of marketing, John Vena Inc. (JVI), Philadelphia. “A large part of our retail business has always been focused on serving those types of customers. While consolidation is definitely impacting the independents in our area, there has been a resurgence of interest in shopping small, and we’re seeing a lot of creativity from these types of retailers that seems to be successful at building brand loyalty despite the temptations of big banner convenience.”
AND THEN COVID ARRIVED
In an industry already responding to core change, the COVID-19 outbreak forced wholesalers to move quickly as dire circumstances rapidly changed consumer shopping behavior and, as a consequence, the produce supply chain. With consumers staying at home by government restrictions and/or choice, and restaurants closed, consumers who were subject to largely confined households needed to start cooking, a lot.
Indianapolis Fruit, Indianapolis, IN, responded to what Daniel Corsaro, president, characterizes as “unprecedented demand” as the coronavirus crisis arrived by bringing to bear and expanding on capabilities it had developed to better serve its customer base in a changing marketplace.
“We had enough elasticity in the supply chain to keep up with demand without dropping service level,” he says. “We feel good about how we did. It’s about being nimble and adding resources.”
Although retail is the main part of its business, Corsaro says the wholesaler shifted what capacities it had devoted to foodservice and other non-retail business that slowed under restrictions addressing the pandemic.
“I think three biggest things we learned is there is power in diversity in the customer base and revenue stream, that our people and practices are top of the line, and to expect the unexpected,” he says.
Under the circumstances, wholesalers that had developed sufficient flexibility and willingness to run with the market found they were ready to navigate a fluid reality.
“In our case, we are fortunate we have a very balanced business between retail and foodservice,” McClelland says. “One can be a little more active and the other be pulling back. That helps us weather certain storms, and that was never truer than it is now.”
Liberty Fruit was able to pivot as fewer people ate at restaurants and non-traditional providers gained. Because it had home delivery and other customers gaining business, the company could pull to that part of the operation where demand was strong.
“Being nimble, a lot of customers turned to us, when something happened, when they had to find something, when they had to fill a short,” he says.
Andrew Scott, director of marketing/business development, Nickey Gregory Co., Atlanta, GA, says that a lot of typical practices no longer proved useful as the pandemic hit, and, so, the wholesaler had to think on its feet.
“It’s hard to look at 52-week usages when you have something like COVID to deal with. We saw a lot of shorts from retailers, and it’s hard to plan ahead when it is four or five days to some growing areas by truck. So we had employees shop for customers online.”
When the COVID-19 pandemic began to loom large, consumer priorities changed and wholesales had to respond.
Katzman says one result was that existing issues such as sustainability became a lesser consideration for most consumers. “Over the past year, throughout the pandemic, we have seen consumer behaviors shift, as they’ve prioritized health and safety over sustainability. At the start of the pandemic, people were nervous about buying loose produce that could have been touched or handled by others, so retailers began to sell individually wrapped items in their produce departments. People wanted to spend less time shopping in stores, which led to increased sales for produce with value-added packaging that they could quickly ‘grab and go.’”
Wholesalers had to adjust not only in terms of immediate consumer response to the pandemic but also to what the market experienced.
“At the beginning of the pandemic when the lockdown was being taken very seriously, a lot of consumers were looking for staple produce items that could be easily used across a range of meals, and especially items that would last between increasingly infrequent shopping trips,” says Kohlhas of JVI. “It was a tough market for certain specialty SKUs for a while, and we were challenged trying to find the right inventory levels for items that just couldn’t maintain a pull at that time, especially those at a higher price per pound that meant more risk for the retailer. It was a potato and onion market. Luckily, as the pandemic has worn on, consumers have started to seek out some more excitement in the produce department as they look to recreate restaurant favorites at home or just add some fun into the routine. It seems that assortments have at least somewhat returned to ‘normal,’ if not even gotten more diverse.”
Observers have commented on how the pandemic has acted as a catalyst, not necessarily forcing the marketplace to invent new ways of doing things but accelerating adoption of functions such as delivery and curbside pickup, that had been in the pipeline. Wholesalers have been adapting and helping customers to adapt.
“The online grocery shopping revolution is making retailers even more aware of pack size, label, and other product details, easy enough for CPG but a major challenge in produce, especially specialty,” Kohlhas points out. “That said, it’s essential that what the consumer sees on the online product listing matches the product they receive. To that end, a lot of retailers, even small independents, are interested in packaging these days. Even things like simple farmstand-style pouch bags, baskets or clamshells can help ensure consistency and prevent mis-picks when using shoppers through programs like Instacart.”
Of course, wholesalers had to adapt to the pandemic themselves, as was the case of Community-Suffolk, Everett, MA.
Steven Piazza, president of Community-Suffolk, notes, “We modified the facility; we keep the jacks, the forklifts clean. We stretched out our hours so we had fewer people in the warehouse but, at the same time, we were satisfying the needs of our customers.”
Even as it dealt with its home base, Community-Suffolk scrambled to reposition operations. A company that was heavily oriented toward foodservice had to reposition to go where demand was, and that had shifted to retail as people found themselves confined at home to various degrees as the pandemic heated up and cooled off, if temporarily. Piazza says that, even when limited indoor restaurant occupancy has been allowed — and it’s no season for outdoor seating in his metro Boston vicinity — moving to conduct more retail business was a must. Even then, though, circumstances, including not only the weather but also factors such as remote working, made getting ahead a matter of accommodation.
“We did maintain our numbers pretty well,” Piazza says. “We modified our mix and bounced back to about 80%. The second wave was a little tougher, but we still maintained numbers well. Anyone over 70 was afraid to come out and go shopping. The younger people were working at home and may have been purchasing online.”
As it shifted gears, the approach Community-Suffolk took to business allowed the wholesaler to make focused, quick changes in orientation and, so, satisfy customers where the demand was acute.
“We don’t do 100 items but do 30 very well. We have multiple growing areas we work with every day. We can get the things that we do well. We can have things come out of California. If they want, we can have it out of Quebec,” he says.
In a number of cases, wholesales found they could exercise their capabilities, innovate and elevate their businesses to meet the coronavirus challenge. Nickey Gregory’s Scott says when its foodservice business slowed in the pandemic, the wholesaler flexed its resources to move with demand.
“In May, June, July, we were so heavy into foodservice and our business changed,” he says. “We sold to retail customers. All the business went to them. As things opened up, foodservice was coming back. The schools opened up, and they buy a lot of produce. Some of the counties up here that still drop off meals to kids run busses to do these meal drops. Being wholesalers, we sold to other wholesalers. And we saw a nice uptick in sales in the home meal replacement business. Now things are starting to get back to normal for us.”
Observers have often noted that the coronavirus crisis has accelerated trends across sectors such as food. Although they may discuss factors such as technology and expanding services such as curbside pickup and delivery, many recognize that consumers are considering what they eat in new ways. Consumers are not only more conscious of what is not in their food, as in the case of organics, but also what is in their foods, as in immune-boosting nutrients.
RISE OF NATURAL FOOD STORES
In New York City, Katzman says, “we have had natural food stores and organic specialty stores for quite a while, but we have seen the number of these stores and the fresh footprint within these stores increase every year. On top of this, we have seen convenience stores incorporate more and more fresh produce offerings. The pandemic has further accelerated this shift, as consumers supplement healthy diets with eating produce known for its health benefits, such as turmeric, ginger and citrus. Fresh produce is more relevant now than ever, and it’s our job to continue to get all of the healthy and delicious products we sell into the mouths of consumers.”
At Indianapolis Fruit, Corsaro says, “Natural and organic has been a large portion of our business for the last five years, at least 30% of revenue. We consider ourselves a market leader in the space. People are gravitating toward natural and organic retailers.”
The wholesaler has built the capability to meet the needs of specialty organic and natural operations, but Corsaro says food retailers have to recognize the importance of the segment today as consumers have grown more concerned with health issues, which often are seen as two sides of the same coin today.
“Traditional retailers need to offer a fair selection,” he says. “Natural and organic has been selling more, and that has led to more square footage than prior.”
The future will mingle consumer behaviors established before with those established during the pandemic. Just where the balance may lie, no one can be sure, but wholesalers want to align with consumer behavior as experienced by retail and foodservice operators.
LASTING CHANGES POST-PANDEMIC
“I doubt things will return to the normal we knew pre-COVID,” Kohlhas says. “One of the most significant lasting changes in retail will likely be the huge injection of energy that online grocery sales has gotten. The wild thing about e-commerce is that once you have a single online purchase on file for a customer, it becomes exponentially easier to drive a second, a third and so on. It’s hard to imagine that online sales won’t continue to grow, or at least maintain the growth from this past year, with all the data retailers have amassed during the pandemic, not to mention the fact that many consumers seem to have had relatively good experiences buying groceries online.”
These days, Scott says, the market is getting over the most disruptive period of the pandemic, although different geographies are having different experiences, with Georgia ahead of the curve.
“It’s state by state,” he says. “We’re pretty wide open. Florida is wide open.”
Of course, some issues that were relegated to the back burner during the coronavirus crisis will become a greater priority once again.
“As we look to the future, I predict we’ll see things trend back towards sustainable packaging, but with lasting implications from the pandemic,” Katzman says. “Some consumers will continue to prioritize health and safety long past the pandemic, preferring packaged produce over more sustainable options. There will also be a market segment who appreciates the convenience of the value-added packaging that they tried during the pandemic and continues to favor these products following the pandemic. Shippers, wholesalers and retailers will have to continue to meet consumer demand for sustainable packaging, while also adapting to these changes even following the pandemic.”
Kolhas says that the marketplace — as it has evolved and wrenched forward by the pandemic — is a bit of a brave new world that issues demands in which wholesalers and their customers, working together, can meet effectively.
“We often deliver next or same day to the retailers we work with in our area, like an increasing number of wholesalers do,” she says. “And we work on a pallet basis across a wide variety of SKUs, so no need to jockey for a full truck between suppliers. That kind of speed and flexibility is invaluable, especially with the unpredictability of national- and global-level supply chains these days. But a retailer can’t just step in at the last minute and expect product when the market is short or a truck goes missing. You’ve got to put the effort in to establish a healthy relationship with the right wholesaler so when the going gets tough, you’ve got someone at your back.”
On the retail side, the pandemic has encouraged consumers to stay close to home and shop grocery stores in their own communities, which has favored neighborhood supermarkets but also newer, often smaller formats they might have not had reason to patronize until now. The future would seem to hold more smaller grocery formats pulling product from their own DCs and other warehouses via just-in-time delivery to keep the stores filled. Wholesalers are positioned to support such distribution models.
“We see this as a great opportunity for us and other wholesalers,” Dan Vena director of sales, John Vena Inc., says. “Smaller deliveries more often are just part of the great value that regional wholesalers bring to the table. Having a wide variety of products to offer, along with the flexibility to adjust orders last minute, make wholesalers a great fit for this model.”
Katzman maintains, “Because we’re based in NYC, where space is often limited, many of our customers rely on us to be their just-in-time delivery. We essentially act as their own DC to provide them with a consistent supply of fresh produce to best satisfy their customers. This is what makes us and our retail customers successful. Our business model is meeting this future need already, and as stores continue to evolve in this direction, we’re prepared to support them the same way we currently support our existing customers.”
With new formats providing different, often specialized consumer propositions, any number of retailers have reason to integrate wholesalers into the more complicated resulting supply structures.
“We’re seeing some banners focus on developing their DSD procurement strategies to give store-level buyers more options to customize assortments and flesh out inventory in times of supply chain disruption,” Kohlhas says.
Certainly this strategy also means developing local and regional procurement partners like wholesalers that can service store-level buys, but also handle the food safety and transparency requirements of corporate.”
Vena says, “We have seen an uptick in small independent grocers and farm market stores throughout the pandemic. Many consumers seemed to feel safer in these environments over the crowded box stores. This has been a great opportunity for us because as the big stores were cutting SKU’s to simplify their offering, the smaller stores were adding new items to appeal to the increased foot traffic they were experiencing. They looked to wholesalers to recommend and provide new items that they may have never before sold.”
BEING NIMBLE AND AGILE
On the flip side, Liberty Fruit’s McClelland says investments in technology and operations placed Liberty Fruit in a stronger position to deal with a marketplace where online transactions and varied means of getting product in the hands of customers is a growing consideration amid disruption.
“I talk about being nimble and agile,” he says. “I talk to the team all the time; I send out emails every week. We tried to figure out how to react when one side was surging during the COVID start. I talk about agility. That’s the term I like. What I say is, I want to be the most agile produce wholesaler in the world. We still want to stay in our lane. I don’t want to become a direct-to-consumer business. We want to serve our customer base, but we want to do it differently.”
The changes Liberty Fruits made have readied it for the future and new ways to deliver produce to the consumer as that consumer prefers.
“We’re all part of the same ecosystem with the Krogers, Targets, Walmarts,” McClelland says. “We all find ourselves repositioning with them in how we move in a particular direction with value-added, convenience, more packaged items. Take our repack facility. When the coronavirus happened, demand for those items in particular was huge. We continue to invest in capabilities to do kits. I’m certainly glad we were prepared, that this had become of the natural evolution of our business.”
“People are gravitating toward natural and organic retailers.”— Daniel Corsaro, Indianapolis Fruit
A lot of the technical adjustments that Indianapolis Fruit has put into place is to make it more responsive to particular produce industry and retail trends.
“We offered marketplace data-sharing, transparency in system access,” Corsaro says. “The other thing is promotion has changed, so we’re adding more planning and forecasting tools.”
Scott says advances in logistics have made a difference for wholesalers.
He adds, “We’ve got the inventory and produce expertise,” Scott says. “We’re produce people. We understand all the moving parts involved. We’re like an ambulance service for the produce retail people can lean on.”
Corsaro maintains that the pandemic’s acceleration of produce industry, retail and consumer trends can create opportunity even beyond, or faster, than what had been the case in an already dynamic marketplace.
“We are aggressively pursuing new business,” he says. “We’re pursuing business where we see market opportunity, expanding in markets contiguous with our market area. We see the opportunity to invest the time and effort so that we’ve created successful relationships, not just selling categories. Relationships have changed. Once they were about picking up the phone and talking to anyone who you felt you had a strong relationship with. Now a relationship is about having clear expectations and executing on those consistently. We find a strong relationship is about knowing what each side of the coin wants, and to get out front. With that comes a lot of comradery, but it’s easier to grow together, pivot and navigate together when each party understands the expectations of the other side.”
Looking into the post-pandemic environment, Russo of Rocky Produce, says, “I think the way of life is never going to be the same, but we’ll get back to some normality. Eventually, we’ll think of this in the past tense, and that’s a good thing.”
Although changes they made to operations in an evolving marketplace helped, wholesalers could ride the rough waters of the COVID-19 pandemic in part because, by nature, they’re prepared to navigate changing tides.
Stefanie Katzman of S. Katzman Produce says that wholesalers, by their nature as go-to support for those businesses selling food to consumers, are positioned to help when markets change either in an evolutionary or an abrupt way.
“As wholesalers, we help our industry partners do their jobs even better,” Katzman says. “We have a quick response to your immediate problem, and we are the solution to your empty shelf. We can consolidate multiple deliveries from multiple farms, thus providing daily fresh deliveries for our retail customers so they don’t need to work out a truck load of just a few items from a direct provider over the course of a week. We have access to information from both the growing side and the retail side, and we play an important role in the middle helping both sides to maximize profits and produce accessibility for consumers. It’s a ‘win win’ for all involved.”