Pundit’s Mailbag — ‘Little Tolerance
For Dictatorial Buyers’
Jim Prevor’s Perishable Pundit, February 27, 2008
Our piece, Just Say No: The New Dynamic Of Produce/Buyer Relations, brought several letters, including this one from one of the trade’s most esteemed executives, a man with an unusual perspective having had high level roles on both the buy and sell side of the industry:
Your “Just Say No” article is absolutely on the mark!
During my years at SUPERVALU and AWG, I spent many days training young buyers that their key responsibility was securing the “best” source for products rather than the apparently cheapest source. As you well know, it is critical to have consistent supply, superior quality, product safety, innovative items, and numerous other attributes — none of which happen fortuitously (they almost always cost more).
The second leap of faith in this training exercise was to develop their understanding that these premier suppliers deserved adequate return on investment and thus should receive a “fair premium” over general market pricing.
Finally to really make their heads spin, I always told them that a reasonable pricing premium returned dividends at retail because better stuff just simply sells better: more eye appealing, better eating quality/customer satisfaction, less shrink & labor, usually better margin, better repeat sales with positive customer referrals, etc. No one makes money until the product goes through the cash register, so I wanted items to fly off the shelves (and the financial advantages of rapid inventory turns are often overlooked).
At Kerry’s Nursery, I had the luxury of being the largest producer of a limited availability and highly desirable product (orchids). Unfortunately I had to make a few of those decisions to politely say no to some really big buyers, and I was able to concentrate supplies to customers who shared my philosophy.
This built a very co-dependent attitude to grow business profitably for both vendor and retailer. The primary potential danger to the vendor is over-concentration with too few customers if the world should happen to change. But there should be little tolerance for dictatorial buyers at the top of the supply chain.
While at SUPERVALU, I was a strong advocate of dropping even the largest of accounts when it was clear that their business could never be profitable. A wholesaler must provide tremendous infrastructure to supply a large customer — warehouse space, trucks, special products, human resources, etc. — and must earn a reasonable return on that investment.
Sometimes in business, you learn that the best thing to do is pass on unprofitable business. Let your largest competitor get it and they just may wind up sinking with it.
If you are a public company and give up a big account, in the short term stock market analysts who don’t really understand your business may crucify your company for losing so much business. There is often little understanding that economies of scale only work up to a point of diminishing returns. It is one thing to take on some lower margin business to increase utilization of existing facilities, but building facilities and planting acreage to accommodate low margin business can be a path to disaster.
In most cases, even to keep a big client’s business when it was functioning at a break-even was unfair to other customers that compete with that big client. Why would you help an unprofitable or break-even client drive your profitable clients out of business or even just reduce their volume?
It is good to see that some of the better suppliers can discretely differentiate, and I continue to enjoy your great articles.
(Pundit Note: Ted Campbell has served the industry in numerous capacities, including as Chairman of the Board of Directors of the Produce Marketing Association and as President of the Produce for Better Health Foundation.. He has held many positions in the industry, including Corporate Director of Produce for Supervalu and Vice President of Sales and Marketing for Kerry’s Bromeliad Nursery. He currently works on a consulting basis.)
We appreciate Ted’s kind words about the Pundit and, even more, his attitude toward procurement. For so many reasons, though, that attitude seems to be falling out of favor among buyers.
For one thing, it presupposes a long term interest in supplier viability and, increasingly, it seems as if only the current quarter matters.
Second, you also seem to have many buyers that aren’t really part of the produce industry. They don’t know much about it; they may be a whiz at a spreadsheet, but they really don’t have a good sense of how procurement, merchandising and marketing intersect in produce. They think they are buying Pampers, and Ted’s point that better product sells better and thus is worth paying more for is outside of their understanding.
Third, we are caught in between worlds. At one point our data collection was very poor and, as a result, the only alternative was to hire knowledgeable people and have them make trained decisions. So although Ted, when he was running produce at Supervalu, may not have had good data to prove that a particular melon supplier produced product that sold better, pleased customers more, had lower shrink, etc., he still knew that to be true and knew his job was to act on that knowledge.
Now, particularly in consumer packaged goods, there is much data, and expectations at retail have changed. Acting based on hunches or experience is not as acceptable.
Yet the truth is that, even today, relatively few produce operations have the ability to say with any degree of certainty whether that trailer of bell peppers received from vendor A resulted in lower shrink, higher customer satisfaction or greater sales velocity than the trailer they received from vendor B.
One day we may have such excellent sales data and be able to cross-hatch it with consumer research that we may be able to operate the department by spreadsheet.
The problem is at the current level of ignorance, trying to operate the produce department as if it were dry grocery results in many missed opportunities and a disheartened supply base.
In fact, the price-driven approach leads to a race to the bottom where everyone — vendor, retailer and consumer — all lose.
Of course, the piece we ran was not about bemoaning the state of retail today. It was about producers refusing to “buy business” by selling at unprofitable prices.
Market share is overrated as a metric, profitable market share is a more important point of comparison.
We thank Ted for sharing his broad perspective with our readers.