PMA FRESH SUMMIT '99 1999-11-08 (1)

DAVID ORGEL

ATLANTA -- It's a new ball game for supply-chain relations because of the unprecedented level of retailer consolidation. The new dynamics are having a major effect on suppliers of produce and other categories, a point that became clear during a workshop here at Fresh Summit '99, the annual convention of the Produce Marketing Association, Newark, Del.

A panel of distributors stressed the importance of developing strategic relationships with vendors and balancing the conflicting challenges of local vs. centralized procurement. "We need our suppliers to help us because we don't have the big staffs of the chains," said Thomas Haggai, chairman and chief executive officer of IGA, Chicago.

"We need manufacturers to take more control of our stores than they would for the chains," he said.

Jay Pack, chairman and CEO of Standard Fruit & Vegetable Co., a Dallas-based distributor and repacker of fresh fruits and vegetables, said the key to addressing supply-chain conflicts is "establishing strategic relations" on the vendor and retailer sides.

"Suppliers seem to have a general concern about pressures on their margins as a result of consolidation," he said. "But vendors feel the pendulum will swing away from price-oriented deals and lower margins once strategic relationships are established." Robert Tobin, president and CEO of Ahold USA, Atlanta, said his parent company is trying to strike a balance between global sourcing across its worldwide retail companies and local procurement. Ahold USA is part of Ahold, Zaandam, Netherlands.

"I want to keep things as local as possible," he stressed, while adding that a retailer of Ahold's size and reach has many options for group buying as well.

Ahold's growing global sourcing program incorporates a number of product categories. These include avocados sourced in Brazil by the retailer's Brazilian company; Holland vine-ripened tomatoes, and certain citrus items.

Tobin stressed that such global programs will never represent a solution for the majority of items sourced.

"We have a multitude of products and diverse stores, so we would never get our arms around more than a core of items," he said. "You can't harmonize 3,000 stores worldwide for sourcing."

Tobin said Ahold occasionally has group buys for the U.S. chains, but such programs are never forced. "For cross-chain programs, each chain decides if it wants to buy in," he said.

Tobin said that the goal of Ahold's programs isn't to reduce its supplier base. "That's never been a goal, particularly in produce," he said. "Ahold has reverence for local marketing. We're trying to do global procurement but not lose the strength of individual franchises."

Distributors said they believed consolidation will continue to accelerate in the United States. "Consolidation hasn't peaked," Tobin said. "A lot of the future consolidation will involve the medium-sized companies."

He said the consolidation trend is being driven by economics. "The issue is the need to add value in the supply chain," Tobin said. "Wal-Mart's efficient supply-chain practices have been a driver for consolidation."

Tobin said Ahold's goal is to be "the best, not necessarily the biggest. We'll walk away [from pursuing a merger] if we can't add enough value or if it's too expensive."

Tobin added that "Europe is in turmoil over consolidation, with many companies taking a safe harbor through mergers."

Haggai said he believes that foreign companies will play less of a role in U.S. consolidation.

"Now the focus will be on consolidation among U.S. regional companies," he said.

Haggai added that independents stand to benefit because they are often in the position of purchasing stores divested by merging chains at the instructions of regulatory authorities. "There's no way to stop consolidation, and I don't think it should be stopped," Haggai said.

Pack said continued U.S. retail consolidation is an assumption built into his company's growth plans.

"As a multiregional player, we see the consolidation continuing in the U.S.," he said. "Our customer base is consolidating on the food-service and retail sides."

Retail executives at the workshop were also asked about the value they place on produce in their businesses, and the responses were unequivocal. Industry statistics show that produce has emerged as a key profit center, and that retailers have used fruits and vegetables as a key element in their effort to differentiate themselves from competitors.

"The produce business is on a rise in our stores," Haggai said. "It's very important to us. It's our signature."

Tobin cited Ahold's consumer-tracking studies as one source of its opinions about the produce business. "In the U.S. we take produce as a very serious venture," he said. "Produce is our No. 1 product priority."