April, 2002

Fruits of Thought

Charge To Shippers

Much of the day-to-day trading in the produce industry is an attempt to deal with the reality of fluctuating volumes and finding prices to clear the available volume. The occasional boom in price still occurs – look at lettuce lately – but, in general, the trend has been that the peaks of produce pricing are lower and fewer than once was the case.

Although farming always had its risks, it was once reasonable to think that the depressed markets would be balanced out by strong markets as the vagaries of weather balanced out. But enhancements in transportation capabilities, the use of controlled atmosphere and other storage techniques, the freeing of trade to allow more growing areas to compete, all have served to make it easier for growers to flood any good market. So the depressed markets happen at least as often as ever, and the good markets aren’t as good as they once were. Which means real trouble for growers.

A certain despair has grown over these issues. At one time it was thought consumer efforts such as 5 A Day might be the answer by helping to beef up the demand side of the supply/demand equation. But the enormous productive capacity of growers seems to make certain that any increase in general demand will be met by an increase in production. So increased demand may be good for the health of consumers, even good for certain large industry institutions, but probably not particularly helpful to individual growers.

Production discipline is a thorny subject. Every few months, somebody sends me some secret proposal for production control through either a co-op or government action. In the end, the only real restraint has to come from banks and financial institutions. After all, if you can’t raise the money, you have a pretty strong firewall against excessive production.

Today there exists at least the possibility that restrained financing might combine with demand for land used for housing and commercial purposes with environmental restrictions on farming, labor and water challenges to create a whole new situation. Perhaps there may be more restraint on production in the future than we currently anticipate. The greatest futurist of the last century, Herman Kahn, cautioned that predicting the future was always difficult because if we really knew how people would do things in the future, we would do it that way now.

In any case despondency is not a solution. So while we let the future work itself out on the production side, we need to look hard at the demand side.

If 5 A Day and generic promotion of produce is one big-picture answer, increasingly it seems that a micro answer is being neglected. It seems typical today to find that shippers – even substantial ones – and smaller commodity promotion groups simply don’t have much helpful information about how retailers or foodservice operators can more effectively sell their products.

Even when they have some formal set of recommendations or some point of purchase material, it all too often has not been tested in any way. It is just an opinion or it is just P.O.P. produced because this way they can send customers something.

Someone should just kill the words Category Management. Obviously no one category in and of itself is important at retail. Boosting profits on apples is only a good idea if it doesn’t kill the citrus business. In fact, it goes beyond that, beyond the realm of the produce department. A lot of people who buy fancy, high profit cheeses and wines enjoy eating them with pears. If maximizing the pear category profits means killing the specialty varieties that cheese and wine lovers covet – and thus driving them to other stores – well, that doesn’t make any sense.

Of course everyone knows category management practiced in this way doesn’t make any sense and so, theoretically at least, chain store executives are not in favor of it. Practically, the problem is that if you pay a category manager based on the earnings of just his category, you’ll wind up with a narrow view. And even if you don’t tie compensation in, time pressures can easily lead a category manager to a simplistic kind of exercise in which the ten items carried are tracked in a movement report and the lowest selling is killed. This is counterproductive.

What is great about the category management movement, however, is that it represents an attempt to turn away from hunches and guesses to fact-based decision making. And here is where shippers and commodity promotion boards really need to step up to the plate.

Remember most retailers that sell produce also sell a lot of other things. Although some executives may care, the institutions they work for in the retail end of things really have no particular concern as to whether people eat more produce or more meat or fish, or if the produce they do eat is fresh, canned or frozen.

Only producers care. And to break out of the feast-and-famine cycle, producers will have to help retailers sell more product at higher profits. To do this, retailers need better information. Who are the customers for a given produce item? What is their value to a store? What other products do they buy? What effects do different merchandising techniques have on consumer propensity to purchase?

All too often when I ask these questions to shippers, I hear some variation on “We just sell it; the retailers know how to move it.” We, as an industry, need to remind ourselves that if we accept this standard, we can expect our products to move only at the speed retailers determine. It doesn’t have to be that way.  pb