June, 1994

Fruits of Thought

Going Beyond Buying Groups

My phone has started ringing again and it’s from shippers — particularly west cost shippers — lamenting the growth of buying groups. These are consortiums, usually composed of several medium-sized receivers, generally from different geographic areas. In the past, these buyers have usually bought F.O.B. over the phone from their own headquarters. But now, they’ve chosen to bind together and form a group buying operation.

Generally speaking the group opens an office on the west coast, and the purpose of the office is threefold: to perform inspections of product before it is loaded; to gather better market information; and by buying in volume larger than they purchased individually, the group hopes to get better prices for all the companies involved.

The situation isn’t always pleasant for shippers. For smaller shippers, the continued growth of the new groups can pose a real threat. After all, a small shipper who had adequate volume to supply a medium-sized customer may simply not have enough product to supply a larger consortium. This means that relationships with a customer that sometimes have been in place for generations simply are superseded by the buying group’s new-found authority.

But even large shippers have problems with these new groups. The problem is multifaceted: In some cases the fact that these new buyers are located on the west coast has added a new dimension to the shipper’s marketing programs. For many shippers the sense is that the propinquity of the buyers to the sellers is not all an upside proposition. Many shippers report that purchasing decisions are being swayed by who takes who to golf or to dinner (or in some cases, by explicit pay-offs).

But even when pay-offs and social conviviality do not distort the buying process, many shippers are unhappy. Those who pride themselves on producing a premium product are disheartened by the buying groups’ substantial focus on price.

It is a real problem and not just for the shippers involved. The buying offices desperately want to show that they can more than cover the cost of the office by getting bargains for their receivers. But this trend can pose a threat to the whole industry. To sell more produce to consumers, we need more cooperation between shippers and buyers, not less. Buying groups add another level between shippers and the end user.

How can shippers afford to grow the best product, pack it or process it in the highest quality way, provide the best merchandising and research support to customers and, in general, become (to use that much bandied-about phrase) marketing partners if the buyer will buy solely on price?

The answer is, they can’t. So the industry needs to be concerned about the buying group trend. The added services that shippers give are often what helps a retailer or foodservice operator boost sales. If these receivers buy just on price, these services won’t be offered, and achieving the 5 a Day goal will become more difficult.

What can be done? The first step has to be taken by shippers in their marketing efforts. It is fine to produce the best product, pack or process it the best way and to provide important services or an established brand. But that is just a start. Not only is a marketing effort required to tell receivers that a shipper does these things but, just as important, a marketing effort is required to demonstrate how these efforts translate into sales, profits and customer satisfaction for the receiver.

This type of marketing is rarely performed in the produce industry. It is rare indeed for the shippers to explain to a receiver, “Because we process our product in this manner you get X, which means you profit by Y.” Filling in this X and Y is going to be crucial if shippers are going to convince receivers to rein in these buying groups and stop them from focusing solely on price.

It can be achieved. Years ago, when I placed bids to supply produce to cruise ships, hospitals and the like, I would be given a bid sheet. For most products the bid sheet would simply give a size and a grade, but for certain products, for example, strawberries, there would usually be two lines on those bid sheets: Strawberries and Driscoll Strawberries, a recognition by the buyers that all strawberries were not alike.

Service wholesalers have found this for years with bananas. Many small- and medium-size chains work closely with banana companies on technical support and other matters, and they have told their service wholesalers they want particular brands. Other chains just want the cheapest brand. So the service wholesalers will often carry a few different brands of bananas out of the same warehouse to accommodate their customers. This is a thought shippers need to take to heart. If service wholesalers can be persuaded to stock different brands, buying groups can be persuaded to buy different brands as well.

But “persuaded” is the key word. Each shipper has to think about getting its name on the receiver’s buying sheet. After all, for all the threatening they do to pull business, the buying groups can only buy what the customer orders. If a receiver places an order with a given brand or even a choice of brands on it, the buying group has to buy that product.

So, for all the receiver’s protestations that he loves a given shipper’s brand, the proof is in the buying instructions. If the receiver doesn’t give his buying group specific instructions on what to buy, it means that the shipper has not successfully persuaded the receiver that he can be more profitable by selling a top line product.

In the age of buying groups, the challenge for the quality shipper is clear: can the shipper reach beyond the buying group to the receivers and convince them that it is important to sell the shipper’s product to the consumer? Can shippers show the receivers that the higher price they may pay for product is, in fact, returned in higher profits?

Shippers have to acknowledge that virtue in growing and packing is not automatically rewarded, but the value of these processes must be marketed. If shippers market wisely, they will succeed, and produce consumption will rise with their efforts.  pb