March, 2010

Fruits of Thought

What Makes A Winning Vendor?

This issue features the 22nd annual iteration of the Produce Business Mystery Shopper Report, in which we send undercover reporters to discover the quality of real world interaction between consumers and store employees. It also is the 9th annual edition to feature the Produce Business Masters of Merchandising supplement, in which companies seize a leadership position in specific categories and seek to educate the retail community as to how to most effectively merchandise and market in these categories to increase sales and best serve the consumer.

Both efforts, in different ways, are attempts to address the reality that retail produce executives have a great deal on their plates and need help if they are to be highly successful at their jobs, serve their consumers in the best way possible and maximize the sales of fresh produce.

A few producers have the luxury of holding exclusive rights to varieties, product innovations or consumer brands that a retail executive may view as compelling enough to dictate a purchase decision. Almost everyone else, however, is compelled to seek alternative ways to differentiate oneself and create a compelling reason for a retail buyer to prefer to deal with a particular vendor. That is harder than it looks.

The crucial matter is quite basic: To have the product. To consistently have product of the size, grade and variety required is no easy matter, and to have it where it needs to be is even harder. Of course, few retailers will ever know what a producer has at any point in time.

So, put more subtly, the key thing is for the buyer to trust that the seller will take care of him. As it is hard to trust a company, the produce industry remains heavily a people business. It is in this gradual building of confidence that leads a retail executive to come to trust that a sales executive will always take care of his needs, that one still finds the essential glue that holds the business together. This glue is not always a sufficient adhesive for the very obvious reason that there are many sales executives and vendors who are willing to work very hard to take care of important buyers.

Also notable is that the basics of satisfying retail needs — quality, consistency, product availability, logistics capability, satisfactory pricing, etc. — are so well known and widely recognized that such capabilities are widely available. In fact, these characteristics and others, such as food safety, traceability and sustainability, are the focus of much vendor effort. Many producers who seek to adhere to the standards of the Produce Traceability Initiative (PTI) do so not because they believe in PTI or feel they have inadequate traceability; they do it because they want to be able to check all the boxes on retail forms, and they never want to give a retailer a reason NOT to do business with their organization.

In effect, although these characteristics might all rank high in a survey of buyer needs, they are not effective ways to differentiate oneself and, in fact, represent a kind of ante — necessary to play, but not sufficient to win. Possessing these characteristics alone almost guarantees that one will be caught in a commodity trap, with price as the only variable that differentiates. Today, the margin of distinction almost always relies on getting involved in something that most produce producers consider both outside their realm of expertise and, perhaps, none of their business — retail issues.

To put this all another way, to add value, a vendor often needs to be able to offer information that addresses a retailer in the way a retailer thinks. Internally, within the retailer’s own company this may mean identifying “opportunity” stores — a common euphemism for stores that underperform compared to the other stores in the chain — and offering strategic and tactical help to bring those stores up to the mean. Externally, it may mean helping retailers to define their market share and focusing on strategies appropriate for that share — these could be bringing a chain up to the performance of its competitors or helping a store build on a strong performance to dominate its competitors.

Don’t retailers do this all the time? Don’t they know better than vendors how to do these things? The answer is yes ...and no. Retail organizations have much expertise, but they rarely focus that expertise on one produce item or category. It is doubtful that most retailers have any idea if they over-index or under-index their competitors on items such as butternut squash. But they would like to win.

In other words, if a chain has an overall market share of 20 percent in a region, but only sells 10 percent of the butternut squash in the region, then a vendor who can both identify this shortfall and help to rectify it is a valuable vendor indeed, much more valuable than one who can only offer cheaper squash. In fact, even if the store is average in butternut squash, if half its stores are under-average and a vendor can help push them up to average, thus increasing the chain’s overall penetration in the market, that is a winning vendor. Certainly, that kind of vendor should get the business and, just maybe, might be worthy of paying a premium.

The value intrinsic in a product is one kind of value. The value intrinsic in having a relationship with a particular vendor is another type of value all together. Success for many producers, retailers and the industry’s overall goal of boosting consumption may ride on focusing on developing the value that comes from being able to really contribute to building sales. This issue is an expression of the importance of offering that value.      pb