ATLANTA -- The effects of retail consolidation on grower/shippers is very much a story waiting to be told, as the current chapter is still being written, according to a panel of industry veterans at Fresh Summit '99 here, the annual convention of the Produce Marketing Association, Newark, Del.
What disturbs suppliers is not that less produce is being sold -- consumption is increasing -- but there are fewer people and companies to sell it to. According to Ed McLaughlin, a professor of marketing at Cornell University and the panel's moderator, statistics show that today there are a little over 200 supermarket chains in the United States, while there are 20,000 vegetables growers.
"There's an enormous structural imbalance," he said.
The roundtable included Ray Klocke, recently retired as vice president of produce and floral for Safeway, Pleasanton, Calif.; David DeLorenzo, president and chief operating officer of Dole Food Co., Westlake Village, Calif.; John Giumarra Jr., vice president of Edison, Calif.-based Giumarra Vineyards; and Tim York, president of Markon Cooperative, Salinas, Calif.
"There are fewer [retail] buyers, and we still have essentially the same number of sellers," said Giumarra, whose company is one of the nation's leading producers of table grapes, in summarizing the dilemma facing the current crop of grower/shippers.
York cited an assessment of the consolidation this way: There are only going to be three players in the future -- the megashippers, niche players and former players. "And it really does seem like that is the direction that we're going as an industry."
Klocke, the retired Safeway executive, said that retail-consolidation's effect on suppliers is focusing mostly on sales -- "If you've got fewer buyers, you need fewer salespeople," he said.
DeLorenzo of Dole agreed, saying that the current shakeout of suppliers is due in part to fewer retail buyers who are wrestling with additional responsibilities.
"They don't have the time during the day to talk to as many shippers as they used to," he said. "It's going to force a consolidation at some level."
It's no secret that one of the most immediate challenges to suppliers is how to move a surplus of product through a distribution channel that has become squeezed by retail consolidation. Klocke said that, in this instance, supermarkets call the shots, and often use price as the deciding factor in who gets the purchase order.
"You've two things working against you as grower/shippers," he said. "You're at a disadvantage because there are less people you're giving quotes to, and you've got too much product. Retail has never really cared about what it costs based on what we sell it for, and they probably never will, because they've got so many other factors that go into the [retail price]," including shrink, wages and the like.
While retailers are discovering synergistic benefits relatively quickly in consolidation, suppliers are finding it more difficult to match efficiencies on their side, the panel noted. Giumarra said that labor is the greatest expense incurred by grower/shippers, and mere consolidation or diversification at the farm doesn't necessarily reduce that cost. DeLorenzo added that potential savings at the grower/shipper level are not as easy to pinpoint as they are at retail, where elimination of overhead is more readily apparent. Additionally, the scale of savings may not be as large as those found in other industries.
"Maybe the biggest issue is productivity and quality, because productivity yield on a farm is what reduces cost, and I think the best practitioners are going to win out," he said.
Giumarra noted his observation, as a supplier, that the merger of retailers results in the better produce program of the two winning out, and implemented throughout the new entity. It's a development that raises the standards, and grower/shippers anxious to keep supplying the new company have to be prepared to meet those higher thresholds as well.
"As the retailers get larger and larger, they're going to look to suppliers that can provide them with a product year-round, with high quality, where every box essentially looks like the one that preceded it," he said.
Regardless of the outcome, suppliers determined to survive and thrive in the aftermath of retail consolidation will have to find ways to buckle down and get the job done -- "Re-prove yourself," as one panelist put it.
"I think we're going to see the big [grower/shippers] getting bigger, and they're going to be planting more, so that they will have the product to meet the demands of these ever-growing retailers," Giumarra said, adding that suppliers can minimize the effect of mergers and acquisitions on their company if they adopt a proactive attitude. For example, retailers are demanding year-round availability of some categories of produce. What can grower/shippers say to them?
"Name the place. We will find [the fruits and vegetables]. We will bring them to America, and we will supply the retailers of the country, so that we can be their partner 365 days a year," he said.
