When we contributed to the National Public Radio piece, Wal-Mart Helps Small Farms Supply Local Foods, and followed up with our piece, Wal-Mart’s Heritage Agriculture Program Gets Good Press But Doesn’t Make A Dent, one of the interesting side effects was we received phone calls from a few of the farmers participating in Wal-Mart’s Heritage Agriculture program.
The main topic of our discussions: The danger of over-reliance on one customer. This is always a danger and, in this case, we think the danger is acute.
We remember as a young man in the business learning from the Poppa Pundit to avoid over-concentration. Among many activities, our family business had an operation that imported Chilean fruit. We were commissioned sales agents for a diverse group of Chilean exporters. We had grown the business over the years the old fashioned way — we performed. Each season we would issue our “account sales” to our shippers and they seemed to share them with their friends, other exporters, down in Chile. Those who out-performed — meaning they got a little better return than others — also got a few additional shippers and a larger share of the crop the following season.
Well, one of our shippers had become very large and we handled only a small percentage of its fruit. Our solid performance led to an offer. They would give us their full crop on an exclusive basis — which was substantially more fruit than we were currently handling. The caveat? They wanted us to drop all our other shippers and work exclusively with them.
The Poppa Pundit didn’t even hesitate before rejecting the offer. First, he wasn’t prepared to drop like a hot potato people and companies we had worked with for decades just because a better offer came along. That was not — and is not — his style.
Beyond those ethics, he just saw it as bad business. With a diverse group of shippers, our business was sustainable. If one went broke or was bought out or became dissatisfied with us, we had many other shippers from which to rebuild. If we had signed up with this one giant shipper, where would we have been if the company decided to open its own sales office or was sold or simply didn’t love us anymore?
Of course, that was a dramatic situation in which we had to choose. Most of the time those who have become overly dependent on Wal-Mart business didn’t do anything but serve their customers. If a shipper started out working with Wal-Mart when it had seven supercenters and had 25% of the business Wal-Mart did for its commodity, if all the supplier has done is hold on to the same percentage of business as Wal-Mart has grown to 2,772 supercenters in the US, it is almost certain that Wal-Mart is the overwhelming percentage of its business.
The problem with the Heritage Agriculture projects and, more generally, the local purchases is that Wal-Mart’s purpose in getting into the program is almost surely not to “help the farmer.” The good PR is a welcome side effect, but Wal-Mart wants to make money.
Perhaps as long as these things are inconsequential, Wal-Mart will let it ride but, surely, as soon as there is a significant amount of money to be made by pressing hard for discounts, Wal-Mart will start pressing hard.
A fair number of organic farmers have refused to sell Wal-Mart. Sometimes this is anti-Wal-Mart ideology, but sometimes it is a business decision, not dissimilar to the one the Poppa Pundit made a long time ago to A) Stick with business partners who have worked with you through the years and B) Not allow one’s business to become over-concentrated with one client.
Our advice to those who called us: 1) Start looking for other customers to diversify your customer base 2) Don’t make capital investments on the assumption you will have Wal-Mart business to pay off the loan 3) Save your money in case you suddenly have to go a season without growing product, and 4) Don’t plant a seed unless you have a signed contract that will be profitable for you.