One might think anyone who opposes the proposal for a national generic promotion campaign is not in favor of the idea. Yet from our conversations we would say that this assessment is not true. Quite a number of people may oppose this particular proposal not because they fear being taxed too much, but because they fear being taxed too little.
Or to put it more precisely, they fear that money will be spent without effect — and that this would be the worst outcome of all.
Let us, for the sake of argument, posit that, in fact, a properly planned generic promotion program can increase demand and consumption. Let us further posit that it can do so at a price point that provides an adequate return on investment for the industry members who would pay the assessment.
Even giving all this to start, we are left with the question of whether this particular proposal, estimated to raise $30 million dollars a year, would be sufficient to do this.
We’ve written so far mostly on the way the project is being presented and questioned if these procedures were going to build confidence enough to see such a program pass:
First, in Got Produce? Generic Marketing Program Dialog Begins, But Is It Right To Use PBH Donor Funds To Lobby For A Mandatory Assessment? we pointed out that people and companies that donated money to the Produce for Better Health Foundation thought they were giving money for programs to increase the public health through encouraging produce consumption. We pointed out that it is just plain wrong to use their donations to fund a lobbying campaign. Just the other day, we ran a piece about a lamb roast being done in California to raise money for cancer. The funds go both to a national association and a local group. Can you imagine the outrage if instead of using the money for treatment, research, patient and family care, they decided to spend the money flying an executive around the country and doing webinars to promote a special mandatory tax on everyone in the country to go for cancer care?
There is right and there is wrong, and those companies or individuals that favor this should fund the advocacy effort. If the advocacy of those who favor the effort is so tepid that they won’t pony up even a little money to run this lobbying campaign, that raises the issue of whether support is actually broad enough to even bother with this industry discussion.
Second, in Got Produce? Both Sides Need To Be Heard, we pointed out that the problematic nature of arranging things so that the industry discussion on the matter is being organized and moderated only by advocates for the idea. The supposed “dialog” consists of official presentations by advocates, with some time for feedback. When, as happened at United, someone respected and important such as Mike Stuart, President of the Florida Fruit and Vegetable Association, raised serious reservations about the program pointing out the difficulty in seeing how it would translate into increased profits for growers in Florida, there was no mechanism to communicate this idea to the industry. Mike was not invited to appear at all future presentations to provide a diversity of views.
We pointed out the obvious. We can’t advance as an industry if the perception is that “the fix is in” — these dialogs have to be genuine and neutral as to the outcome. The organizers of this effort simply can’t have any skin in the game as to whether the industry comes out pro this proposal, anti this proposal or makes a different proposal.
Now, as we move into more substantive areas — in this case whether adequate funding is being provided to accomplish program goals — we find the lack of neutral parties involved in this effort even more troubling as we fear that the budgetary number was chosen, not based on an appropriate analysis of what is necessary to accomplish the goal, but, instead, because the proposal was designed by advocates, who chose the budgetary number because that was the number the advocates felt they could get approved. This way lies ruin… and the waste of industry funds.
We are reminded of the battle 20 years ago over the possibility of establishing a California Orange Commission. That effort ultimately failed, foundering mostly over the issue of a ”brand credit” — meaning primarily that Sunkist growers, since Sunkist was already spending money on promotion, should get a credit against the assessment.
One can be certain that the issue of brand credits and, perhaps even larger, credits for money being spent by state- and commodity-specific promotion groups will come up again, and we will discuss them in a future piece. For now, however, we wish to focus on the issue of sufficiency and in that vein we recall a 20-year-old interview that Pundit sister publication, PRODUCE BUSINESS, did with Ray Cole, who was, at the time Director of Marketing Services for Sunkist and had previously been with Sunkist’s longtime agency, Foote Cone & Belding.
In a fascinating interview he dealt with this issue of sufficiency by comparing launching an underfunded generic promotion program to launching a satellite but with insufficient fuel in the rocket to achieve orbit — a lot of money and effort expended pointlessly. You can read the whole interview here, and we reprint the relevant section below:
PB: How does Ray Cole feel about it?
COLE: I am opposed to the generic program on a totally different basis. I don’t see the industry taxing itself sufficiently to really do an effective job. I’m not even sure that Sunkist is doing the best possible job at the moment, because we’re not spending as much money as I think we should, but that’s a separate issue.
PB: Well, exactly how much money do you think Sunkist or the proposed commission should spend?
COLE: Let’s talk about what it takes to increase the consumption of California oranges, because I’m not sure we can promote navels without Valencias either. We did a lot of work in 1970-72 and repeated it in 1981 to see what the effect of more advertising on the American consumer would do in terms of consumption of California-Arizona oranges, particularly Sunkist oranges. We found a level of advertising that worked. We experimented with higher levels and lower levels and we did a test marketing program.
It was scrutinized beyond belief, because it was highly questionable here at Sunkist. The first effort was done when I was back at the agency, and we were trying to recommend this to Sunkist. I know from that experience that there is a level of advertising that it takes to change consumption habits, and I know that consumption habits, can be plused, at least I think they can. I’ve not yet heard any discussion in this talk of generic advertising that would come close to generating the dollars to spend at the rate necessary to increase consumption.
PB: You’re talking about a very big increase of how much?
COLE: I’m talking about spending probably $20 million a year. If you only spend $10 million and you don’t change per-capital consumption, what do you accomplish? You’ve taken $10 million out of the growers’ pockets for no end result. It’s kind of like trying to put a satellite into orbit and not putting enough fuel in the rocket. You blew a lot of money, for nothing.
PB: Some people would say something is better than nothing, when it comes to promoting citrus or any other commodity.
COLE: I think if you really want to do this you have to do it at a proper level, with a thought-out plan, and a comprehensive recommendation based on the size of the task, not what the grower can afford, necessarily. And let the grower decide if he wants to undertake that task. But don’t just assess him 7-cents or 10-cents a carton because that’s all he can afford. If it doesn’t give you enough money to do the job, don’t do it. That’s where my concern is about the generic program
That $20 million a year figure was based on research done in 1981 — almost 30 years ago. Not only have we had about three decades of inflation, that estimate was also based on a much simpler job, increasing consumption of one commodity. When the goal is increasing consumption of oranges, it doesn’t matter if you get the sales from the most likely place — other snack fruits. So the boost in orange sales probably would come at the expense of apples, grapes, tree fruit, bananas, etc.
Thirty years later, we are talking about a much more difficult task; getting people to consume more produce overall, which means the increase in orange sales can’t come from other snack fruits. It likely means getting people to eat less of totally different categories: meat, dairy, seafood, poultry, bakery, candy, etc. That is a far more difficult and expensive task to undertake than a commodity promotion effort.
So, how do we know that the $30 million budget for this new board will be effective? Well we don’t.
First the proposal is missing what should be a prerequisite: an estimate of sales in the absence of such a board. If we allow this to go through without such estimates, it is a sucker’s game because three or five years after launch, when the program would likely be up for renewal, one of two things will happen: If consumption numbers have risen, the program executives will take credit for that increase — even though it may have happened without the program. If consumption numbers drop, program executives will claim they would have dropped even faster had it not been for the program, and it should be renewed with a bigger budget so that they can get consumption into positive growth.
Without estimates of what consumption would be in the absence of the program, we can’t even begin to look at what kind of benefit this program — if it achieves its goals — will bring to the industry.
How did the advocates settle on this $30-million amount? That is a little difficult to say. The proposal is filled with all kinds of things that are at best, suggestions, not binding restrictions. So the advocacy piece proposes a “social marketing” program — although the board is actually free to run any kind of program it thinks best. They don’t go into great detail but basically this means that, in addition to conventional advertising, they will use PR, the Internet, viral techniques, social sites, such as Facebook and MySpace, partnerships with community groups, schools, etc.
The advocates then identify varying social marketing campaigns that have been, supposedly, effective.
One was a very short program — only six weeks — to get people to switch to skim milk. It seems to hold promise. You can read literature about it here, here and here. But as a six-week-long program, we just don’t think it is relevant to what is being proposed here: A multi-year, indeed supposedly a permanent program.
Three others were also presented:
One focused on increased physical activity in the US and supposedly had a 20% impact. That program cost $60 to $125 million per year, or double to more than quadruple this proposal.
A second was an anti-drug campaign that supposedly had an impact of 23%. It cost $90 to $180 million per year, or three to six times what is being proposed for this program.
The third example given of long-term programs that advocates claim prove the effectiveness of these programs and the budget needed to make them happen is a foreign program, a program designed to increase consumption of fruits and vegetables in Western Australia.
This program was done in an area with a fraction of the population of the United States. They spent $0.56 per adult per year. If we extrapolate this to the population of the United States, the cost would be approximately $135 million per year. Many would argue that in the crowded media markets of the United States where there is so much competition and noise, the cost would be far higher.
Now Elizabeth Pivonka got an estimate from an ad agency that if they adapted the program to only go after the PBH target audience of moms, the campaign could be done for about $52 million a year. Although, of course, the “impact” of the campaign — supposedly 19% over three years — would presumably be affected by no longer exposing the campaign to men, single women and married women without children.
In any case, here we have the three programs that the advocates of this new generic promotion program point to as examples. Presumably these are the best case scenarios. We have costs ranging from $180 million a year to an abridged program aimed only at mothers that costs an estimated $52 million a year. So after carefully reviewing these programs, what budget did the advocates come up with? Inexplicably, $30 million a year.
In our attempts to understand why this number was selected, we have been given two responses. One is that with all the produce industry has going for it, with free publicity and public health authority backing, it can do things cheaper than other industries. This may or may not be true, but since the Western Australia program also was a produce program, and they know all about public health benefits of produce down under, this argument would not apply to the most relevant example.
Second, Paul Klutes of C.H. Robinson and current Chairman of The Produce for Better Health Foundation and one of the three main advocates for this generic promotion proposal, draws on his experience working for Welch’s that many private companies run effective campaigns for less than $30 million. This may be true, but we are not sure it is relevant. When Coca-Cola advertises, it is not really to make people thirsty, it is not even to get people to give up milk or beer… it is mostly to keep people who already drink Coke happy with that decision and, to some extent, to get Pepsi drinkers to switch.
Our purpose in considering industry-wide generic advertising is to change eating habits, which poses very different challenges than most corporate campaigns. When Progresso advertises soup, it doesn’t care if the overall soup category grows. It is content to take a little market share from Campbell’s. Tell Progresso to grow its sales without taking them from any other soup — including frozen soups and just-add-water soups — it would need more money as well.
So we look at the numbers and, as we emphasized earlier, these are the programs that the advocates of the proposal have presented as models, and we can’t see how one gets a $30 million budget.
An extrapolation of the West Australia program at $135 million seems more reasonable. And this is more in line with other US commodity promotion programs. The National Pork Board has a budget of about $60 million a year; Beef is $80 million a year and Dairy about $280 million a year. When you consider the enormous difficulty of promoting produce what with the diversity of produce items, something in that $135 million-a-year range strikes us as realistic — though note this is more than four times the money the proposal calls for!
The real problem, though, is not a difference of opinion between the Pundit and those advocating this program. People of good will can differ. The problem, once again, is that because advocates of the program selected this number, it has no credibility.
This is the type of situation in which credibility is crucial because the industry has to know it is not throwing money away, as Ray Cole suggested could easily happen.
In drawing up a proposal like this, the industry needs to go to a neutral party, say Ed McLaughlin at Cornell University, and ask him to put together a team of top academic experts to A) Make an assessment of what the trends for produce consumption are leading to in the absence of a program, and B) Have his team suggest the bump in consumption attributable to marketing programs at different levels.
In retaining the academics the industry needs to make it 100% clear that we are completely neutral as to the outcome of this study. We don’t care if the promotional cost is cheap or dear, we just want the best estimates that can be developed.
Then we can all sit down and assess whether this makes sense. As Ray Cole said, give the grower the facts and then let the growers decide if this is a project they wish to undertake. Under the current proposal there is this nagging fear that the budget-selection process was influenced by political consideration. That $30 million was chosen not because it is optimal, not even because it is sufficient, but because that is what the advocates thought they could get. And that is not an acceptable way to budget for a media campaign.
There is one other way to approach this. And that is to do a test market. One of the unusual things about this proposal is that it proposes a roll out without a test. Why not do a local version of the proposed national campaign in a few test markets? Then we could actually evaluate its effectiveness before we roll it out nationally.
Actually PBH has applied for a grant to get funding to do such a test. Here is the Grant Abstract:
The Amount/Intensity Of Marketing Required To Increase Fruit & Vegetable Consumption
This Coordinated Agricultural Project (CAP) will test the effect on sales and consumption of fruits and vegetables (F/V) of an intensified social marketing and communications program for the new Fruit & Veggies — More Matters public health initiative at three levels of intensity, targeted to mothers and their families.
This project will expand current marketing efforts for Fruits & Veggies — More Matters in three markets using proven social marketing and health communications models; a fourth market will be followed for comparison. A strategic step-wise process will include formative research, communications planning, and implementation of the intensified campaign. Process and outcome evaluation will be ongoing with final assessment and modeling.
The intensified campaign will include public relations and community outreach activities, advertising, TV programming, social media such as the web, and partnerships with influential groups such as schools, community groups, and extension. Outcome data to determine impact will include F/V sales data, attitudes towards, and self-reported consumption of, F/V. Results will be used to develop a model for implementation in other markets, to project the cost to implement the campaign at a national level, and to inform a proposed new national fruit and vegetable research and promotion board about the amount of funding that is needed to increase F/V consumption.
The primary goal as it relates to the Specialty Crop Industry is to increase short and long term consumer demand for F/V, to improve profitability of the specialty crop producers and the health of consumers through increased consumption of F/V.
This is a very sensible idea. Perhaps, though, we should wait on making a decision about at what level to fund a national generic program until the results are in?
In fact, if the grant falls through, perhaps our focus should be on funding such a test, rather than leaping to a roll-out?
One very insightful participant in the California tree fruit industry had a different take on the interplay between Wal-Mart and the collapse of Ballantine Produce:
This season is certainly setting up to have all the drama of the next “24” episode. A drama you touched on in your piece titled, Did Wal-Mart Have A Role In Ballantine’s Fall?.
I think there is one piece missing that also involves Wal-Mart. The real crippling element of the Wal-Mart deal may not be their lowering of the contract prices, rather the trading margins that were generated early in the program that covered a myriad of sins in the basic business structure of Ballantine and I might also add Fruit Patch.
Going back to the early Wal-Mart days, here is my take on it. When Wal-Mart first started in produce, they attracted those tree fruit suppliers that had to live by their wits and creativity because they did not have a strong product base to work from.
Their early suppliers were Kings Canyon, Surabian Packing, ITO, Ballantine, and Fruit Patch. At the same time, the blue chip companies — Fowler Packing, HMC, Gerawan — did not need the business and certainly were not going to jump through the retail link hoops etc., of dealing with a newcomer to the retail food world.
As the years passed, Wal-Mart placed greater emphasis on a company’s ability to do vendor-managed replenishment than their ability to grow and reliably deliver product. In our category today, Pandol, Del Monte, C.H. Robinson and Crown Jewels are all vendor co-managed tree fruit suppliers. Fruit Patch and Ballantine saw the potential gross margins that could be generated by selling at the then very attractive Wal-Mart contract prices and buying at the open market prices.
They both opened offices in Bentonville to secure their stake of the DC assignments. And for a number of years, Ballantine and Fruit Patch netted millions by trading on their access to Wal-Mart. I believe this profit opportunity played a role in the sales management changes at Fruit Patch several years ago, and I can only assume was factored in the sale of the business to American Capital.
As special buys came into the picture, this put a dent in the margin potential of the business. As Wal-Mart has been more aggressive in their contract pricing, the risk of taking Wal-Mart contract business, without having the fruit to cover the commitment, not only limited the margin potential but has now created a potentially significant risk should the spot market be higher than the contract market.
Take a year like this where the volumes will be off 20% on peaches and nectarines and 40% on plums, combined with the higher specs imposed by Wal-Mart this year, in the short-term millions of dollars will be lost by those having to cover the opening orders. This will come out of the marketer’s pockets, not their growers. The growers will get the benefit when the orders are filled during the course of the season.
If a company is thin going into the season and takes a big hit on the front end watch out! I would not be surprised to see some out-of-stocks at Wal-Mart on tree fruit.
One positive that we must give Wal-Mart high marks for is loyalty. Just several weeks ago, Ballantine was awarded 11 DC’s and Fruit Patch awarded 10 as in previous years despite suggestions to Wal-Mart of their weakened condition.
These comments are not at all insightful to those close to the tree fruit shipping world.
We appreciate the input but find this analysis raises as many questions as it answers:
Fruit Patch, Ballantine and Trading
As to the specifics of Ballantine and Fruit Patch, it strikes us that they are similar to many of Wal-Mart’s contract vendors in that they have secured produce from a variety of sources. Fruit Patch has its own facility in Dinuba and packs there, but it also has marketing agreements with other packers who pack its brands and does work with a few outside packers with whom it shares portions of its business. We actually understand it picked up an extra 400,000 odd cases “to pack” just in the last month or two.
Although Wal-Mart has tried to steer away from brokers, perhaps foolishly, it has never required its vendors to own 100% of the farms on which its produce is grown. In fact, since the vast majority of growers are surely incapable of being true strategic partners with Wal-Mart and utilizing the Retail Link system to its fullest advantage, requiring vendors to own all the farms the fruit comes from would basically dictate an enormous consolidation of the farming sector.
It is also not clear that a “pure grower” would best meet Wal-Mart’s needs. Part of the responsibility of a contract vendor is to avoid-out-of-stocks. We noted when there were weather problems in the east that those retailers who had contractual relations with specific farmers wound up either being out of stock or doing a lot of work themselves. Those who dealt with more complicated organizations — some might have had growing operations but also represented growers and bought product on the trees or in the fields and had strategic partnerships and importing divisions, somehow managed to mostly keep product flowing.
To say Fruit Patch or Ballantine were “trading on their access” to Wal-Mart sounds pernicious but really is just another way of saying these companies had a satisfied customer that valued things other than fruit production — vendor-managed replenishment, for example — and they were buying product to satisfy the needs of their customer. Remember that no matter who grew the fruit, it was the vendor working with Wal-Mart that had responsibility. The fruit had to be acceptable to Wal-Mart, whose metrics for out-of-stocks, rejections, etc., had to be met, credit had to be provided, etc.
Even saying that these companies opened offices in Bentonville to “secure their stake of DC assignments” sounds evil, but then one thinks about how opening an office secures DC assignments. Isn’t it just as accurate to say that they opened sales offices in Bentonville to give Wal-Mart the best possible service and, as a result of doing so, were given DC assignments?
There is some potential truth in Wal-Mart ‘perhaps running short’, but not likely with peaches, the largest item. There are too many other local regions where Wal-Mart will be sourcing, and we are told that the Carolinas and various Midwestern states have ‘full crops’. The prevalence of ‘buy local’ programs, by Wal-Mart and others, is sufficient to change our calculations on adequacy of supply out of California.
Owning Fruit vs. Buying Fruit
We also question the implication of what our correspondent is claiming regarding the positioning of vendors who own fruit vs. those who buy it. If the spot market is high and a grower has fruit, he would sell it at that high market price. If he doesn’t because he has a contract with Wal-Mart, he is losing that margin just as assuredly as if he were buying the fruit. The only way it would not be a loss would be if later in the season Wal-Mart was to overpay for the fruit in down-markets.
Much of the complaints we have heard about Wal-Mart’s procurement practices, though, is that it is doing the opposite. When spot prices exceed the contract price Wal-Mart demands every box the contract allows… and more. When the contract price exceeds the market, Wal-Mart seems to find ways to buy little or nothing. And there are always ways. For example, the DCs themselves are allowed to buy product directly. Supposedly this is limited to 2% of DC volume, which sounds inconsequential — unless the DC takes the whole 2% in one commodity!
It is true that a company that owns all its farmed land and its packinghouses free and clear without any mortgages — that is well capitalized enough not to need to borrow for pruning and to carry its accounts receivable, not to mention to invest in supply chain initiatives such as traceability, food safety and sustainability — may, in fact, make a “profit” at very low prices and thus avoid the fate of Ballantine Produce. But this “profit” is a chimera as it provides no return on capital. The issue for the industry is how to make a profit sufficient to justify new investment and thus attract new capital to the industry.
The Early Days and Loyalty
This letter reads to us as if one who had not worked hard to help make Wal-Mart a success now wants to set up a justification for getting Wal-Mart business. The bottom line is that 20 years ago, some companies chose to align themselves with Kroger, Safeway, Supervalu/Albertson’s — and some chose to hitch their wagons to the Wal-Mart star.
Choosing to work with Wal-Mart was not without consequence. It was difficult for a Ballantine to get the business of other chains because it was identified as being on Wal-Mart’s side. And, as our correspondent points out, it was a lot of work for very little business.
Of course, our correspondent is correct in pointing out there were reasons why everyone elected to do what they did, but it was a conscious decision, nonetheless, and it is maybe too simplistic to say that the “blue chip” companies didn’t need the business. Chiquita was one of those early suppliers, as was Martori Brothers and many others; these were not small guys who had to “live by their wits.” It might make more sense to call them visionaries who chose to align their companies with a customer they assessed would be a long-term winner.
We can’t get excited about a loyalty that says you still get the business as long as you are as cheap as anyone on the planet.
The other day we ran a piece, Pundit’s Mailbag — Response To Ballantine’s Fall: ‘Just Say No’, which included a letter from a trucker who pointed out that this kind of customer isn’t a customer at all.
There is a business case for loyalty. Four years ago, when one spoke to Wal-Mart vendors, they were fiercely loyal. They didn’t care what anyone said; they were on Wal-Mart’s side. It is not an inconsequential thing in produce to have a supply base passionate about helping a customer win.
Yet, we confess that there is something more. We were brought up to believe that loyalty was a value in and of itself. Back when the family business was based in the old Washington Street Market in Manhattan, the Pundit Poppa once needed a loan. He was turned down everywhere, except one bank said yes and he moved his accounts there.
Some years later, the City of New York moved the market to the Bronx and the Pundit Poppa was an original tenant at the Hunts Point Market. The bank that had given the loan didn’t have a branch in the Bronx. Yet for years thereafter, at his own expense, the Pundit Poppa had a courier take his deposit down to the bank in downtown Manhattan every day. Note: he didn’t ask the bank to pay for the courier or demand the most competitive rate, he just stood by the bank that stood by him when he needed it.
This was an action hard to justify by any business interest. By that time, our family business was larger and well financed and could get a loan from any bank. The only way it made sense was because this was as an authentic expression of personal and corporate integrity; we didn’t forget those who helped get us to where we were.
Maybe it wasn’t a strategy to maximize profits but, then again, you have to ask over what time period you are considering. When the Pundit came to work at the family business, he quickly learned that the loyalty was repaid many times over. We got product, we got export vans, we got trucks, we got consignments, all because the Pundit Poppa was loyal. Or more precisely, because he didn’t begin every day as if the past had never happened — he felt obligations to vendors, employees, customers and others that were never in a written contract.
We never once saw him turn away a friend. He didn’t act this way because it was a brilliant business strategy. He did it because it was the way his father taught him; and it had become his way. Is the Pundit wrong to think that in the gifts heaven has provided, being taught by men such as these was among the most valuable?
Our piece, Did Wal-Mart Have A Role In Ballantine’s Fall? — continues to bring in an avalanche of mail. Roughly 90% of the notes we receive at the Pundit are one-liners and we don’t typically run too many of them because they are just words of appreciation. This time we received some short notes with some substance:
Nice article. The 850-pound Gorilla is not a “partner”……
— Bill Young
Stemilt Growers Inc
Someone once told us a little saying, and we have somehow come to think of it many times while doing business. They said if an elephant and a mouse can’t get along, you have to assume that the elephant isn’t doing all it could.
Maybe though Bill’s simian analogy is more apt. It is like all those stories you read about peaceful pets that then one day do something horrid. Wild animals are not pets, and long periods of peaceful activity still cannot deny their nature.
Or maybe it is that old fable often misattributed to Aesop of the scorpion and the frog. The story goes that the scorpion asks the frog to carry him across the river. The frog demurs, fearing he might get stung. The scorpion reassures him that he wouldn’t do this because if he did, they would both drown. Persuaded, the animal begins to carry the scorpion across the river, midway, the scorpion stings the animal who cries out: “Why did you do that, now we shall both die.” The scorpion replies, “I did it because it is my nature.”
Yet none of these stories really fit — for Wal-Mart is neither an elephant, a gorilla, nor a scorpion. It is a company managed by people, and those people make decisions every day.
In sustainability work, you read a great deal about Native Americans who we are told approached each decision with this question: What is the impact of my decision on the seventh generation of my people? That is where the popular brand of green cleaning products took its name.
Despite the claims of executives, we don’t think Wal-Mart has institutionally internalized the real meaning of sustainability.
This was a bulls eye hit on the Ballantine situation…good stuff.
— Darrel Fulmer
Sun Fresh International
Darrel has seen a lot and so his opinion counts for a lot. We appreciate the note.
Very interesting reading. Ballantine won’t be alone due in part to the way Wal-Mart buys. Too many companies have most of their eggs in the Wal-Mart basket and won’t survive when Wal-Mart goes another direction.
— Don Johnston
Director of Sales and Marketing for the Melon Category
Chiquita Fresh North America
Yes, that is why great companies acquire great responsibilities. When they move, they crush people, places and things. Bruce Peterson used to try to restrict the percentage of business a company did with Wal-Mart, but barring auditing everyone’s books, it was a tough edict to enforce.
And, finally, from a Wal-Mart vendor who wishes to remain anonymous…
I would just like to say that your article on Wal-Mart was 100% right on. I work for a large WM vendor of fruit and veg, and I overheard many people commenting in our office on how well you nailed it. I genuinely feel for the growers and shippers that are getting driven out of business, while Wal-Mart thrives. Thank you.
We feel for individual companies as well, but we think there is a bigger issue that affects the kind of industry we are going to have.
What Wal-Mart is doing won’t stop many people from profiting while supplying Wal-Mart. What it does, though, is reward a certain type of intelligence and expertise; it gives the edge to the crafty and the shrewd. Not bad people, necessarily, but those who figure out how to work the system and be quick on their feet.
The good farmers, the great growers, those who don’t know how to work a special buy, the type who don’t submit cheap bids figuring that even if they don’t get the business they at least ruined things for their competitor…these salt-of-the-earth growers, who work day and night on producing a great product, do not deserve to be the losers. It doesn’t help the industry to develop systems that devalue their skills and place great value on craftiness.
We doubt Wal-Mart intended this or that the powers that be — mostly far distant from any farm — are aware of what the implications of their actions are. But that fact makes them no less real.
Many thanks to Bill, Darrel, Don and our vendor correspondent for their contributions.
Pundit’s Mailbag — Mike Stuart Of FFVA Speaks Out On Ballantine And Buyer/Seller Relations brought several letters including this one from one of FFVA’s members:
Over the past 5-8 years I have watched as retail prices at store level have inched their way up and producers have inched prices down.
At present we are being asked for prices that were used 10 years ago and yet the store price will be 50 cents more per pound. 99 cents per pound used to be a regular price on squash, eggplant, tomatoes, beans, pepper and that was giving their customers a value. Now they would rather buy one load at 40 cents per pound and retail it for $1.99.
What this has done is to create market space that allowed smaller discounters such as Aldi to come into markets and price product at fair prices which return good profits. It is wrong for a retailer to want a low price and not pass that value on to their customer, which in turn might bring more customers into their stores and lead to the consumption of more fruits and vegetables.
Agriculture is the last efficient manufacturer left in America, and we are working hard at giving that away also.
— Tom O’Brien
C&D Fruit and Vegetable
We appreciate Tom’s earnestness and understand the frustration he feels. We would probably pull back before calling any retailer’s pricing “wrong” in an ethical sense. Pricing is a business strategy, and if one retailer wants to be very cheap on meat — and thus charge high margins on produce — we can hardly say he is “unethical” compared to a retailer who wants to discount produce and earn big margins on meat. It is also important to remember that the FOB cost of the produce is generally only a fraction of the retailer’s costs. There is freight, warehousing, redistribution, labor, rent, energy, insurance, payroll, taxes, the ad man and a lot of other things. Although the FOB may have stayed flat, these other costs have not.
We do, however, think that Tom’s comments on Aldi are telling. The chain is now up to over 1,000 stores in America and, as best as we can see, Wal-Mart has no strategy for dealing with this deep-discount concept.
This is exceedingly odd being that Wal-Mart failed in Germany in no small part because it could never establish a reputation as the low price leader because of Aldi and similar stores.
So a failure to effectively compete with Aldi is putting at risk the crown jewel of the Wal-Mart Empire, its reputation as the low price leader.
When we have spoken to Aldi executives, they have denied ever buying lower quality produce in order to offer low prices. Aside from trying to keep operating costs low, they argue that it is their flexibility that enables them to buy better. So, they might buy a size, for example, that is dictated by where the crop is peaking that year rather than some pre-determined specification.
Of course, this is retailing as a win-win-win. The grower wins as he gets help moving the sizes he is heavy with; the retailer wins as it can buy produce at a good price and thus make a profit even while offering his consumer good value, and the consumers win by getting quality product at a value price.
The problem is with retail as a win-lose-lose. If the retailer abandons its own specifications, as we explained Tesco had done with its Nature’s Choice program, then the retailer wins by getting a cheap price, but the growers/packers lose as they invested to win a customer they didn’t get or can get only by accepting no return on their investment. Finally the consumers lose because, included in the basket of values the consumers think they get by buying Tesco produce are those that are inclusive to the Nature’s Choice standard — food safety, traceability and sustainability — so not following the program means that, in effect, the consumers are getting less than they were paying for.
The issue is not that retailers should always pay more, per se; the issue is that retailers should pay for what they say they want. If Wal-Mart wants to require Global Food Safety Initiative certification, or conformance to the Produce Traceability Initiative or companies deeply dedicated to sustainability — bully for Wal-Mart — but it has to take out of the competitive pool companies that don’t meet these standards so that those who have invested to do so are not forced to compete with producers in the soft underbelly of the produce trade.
Many thanks to Tom O’Brien and C & D Fruit and Vegetable for helping the industry to reflect on such important topics.