NEW ORLEANS -- The produce category will experience strong growth if retailers commit to key suppliers, and vendors offer more than lowest price, according to a pair of industry analysts speaking at Fresh Summit 2002, the annual convention of the Produce Marketing Association.
Retailers who select "full-service category providers" can more effectively compete in the marketplace, since they are backed by suppliers who offer comprehensive, account-specific after-sale support, as well as related value-added services.
Tom DeMott, a former retailer and now senior vice president/partner of Encore Associates, San Ramon, Calif., said produce suppliers have been changing their marketing strategies in the wake of retail consolidation, in part because their own product lines have become standardized, or "commoditized."
"So, the true differences between sellers begins to disappear," he said.
"And, a lot of these differences that you have come to know as valid are beginning to disappear and put pressure on your margins," he added
Price is the biggest loser in the changing business environment, DeMott said, and the failure of old formulas is what's forcing suppliers to reduce their own costs of doing business, bringing them on par with retail thinking.
Jeff Menashe, principal, The Food Partners, Seattle, said that retailers are working through "a hangover effect" from the period of big consolidation, which has allowed the top five retailers in the United States to amass 40% of the market. Now, they're digesting acquisitions and merged companies -- with mixed results.
"They're still not achieving a significant reduction in the cost of goods sold," he said, adding the effort to reduce store labor is also impacting on their ability to service the customer.
Other forces, such as auctions, are encroaching on traditional buy-sell methods. Consolidation in retail buying offices, too, means suppliers have had to throw out price as a strategy, and adopt more customer-sensitive practices.
Retailers are also facing a whole new field of competition in the form of drug stores, mass merchants, convenience stores and club stores, all of whom sell some form of produce.
"Information is becoming more and more valuable -- information about the consumer, about the marketplace, who's doing what, what's going on.," DeMott said. "And there's no bigger void of information out there than with retailers.
Retailers "always want the latest and the people that supply them with information that's of value are going to go to the head of the food chain."
While price is a part of today's equation, it is no longer the sole factor. Rather, the idea is to focus on creating value, he added.
Adding value on the supply side requires a change in strategy with a message that is easily communicated to employees, and retail customers.
Becoming proficient at the basics helps, DeMott said. For example, strive to keep service levels at least at 98%; deliver orders on time; and be fair and honest in all transactions.
Besides products, vendors should also "sell" category expertise that includes real data on the product, its movement and ways for retailers to drive in-store sales of that item, he said.
DeMott urged sellers to consider dual-branding _ offering both a grower's own brand, as well as a corporate brand to larger operators.
"I think that at the end of the day suppliers are going to be partnering with only a few buyers; you can't partner with everybody, so select who you want to jump into bed with, and go shoulder-to-shoulder with, to fight these wars," DeMott said.
