Tim O’Connor, President & CEO of the United States Potato Board, always seems to have the experience the industry needs. In the aftermath of the spinach crisis, he wrote us a letter, which we published under the title Pundit’s Mailbag — Buying Safe Food in A Changing World, that drew on his long experience with the US beef industry to help us analyze what the Buyer-led Food Safety Initiative could mean to the produce trade.
It is a lesson we still could pay more attention to:
If the buyer-led initiative stimulates processes above the minimum standard, such as Darden’s, and alters buyers’ purchasing criteria to value attributes from their suppliers beyond price, it will have great meaning to the produce industry.
Now Tim draws on years of cooperation with the British Potato Council to assess the meaning and significance of our piece, Asda and Tesco Buyers Accused Of Arm Twisting. He has some nice words for the Pundit too:
You continue to deliver important topics and interesting dialog to the produce industry; your coverage of the UK retail market is extremely valuable to the US produce industry.
I have been a student of UK produce retail innovation for the past seven years as I have tried to assist the US potato industry to move beyond its commodity mentality. In the course of that study, through our partnership with the British Potato Council, I have come to know numerous UK suppliers and retailers fairly well; this battle, and those like it in the US marketplace, is classic industry competition in commoditized markets.
Suppliers to Tesco and Asda, who produce unique, innovative offerings and provide category management services for those chains in a dedicated supply chain partnership, work outside these price wars. Suppliers who grow and ship commodities that are easily replaced by another supplier willing to sell interchangeable products at lower prices find themselves in the center of the storm because the retail chain has no incentive to remain aligned with a commodity supplier, and its switching costs to a new commodity supplier are virtually zero.
The most successful UK supplier organizations have made themselves as close to irreplaceable to their retail partners as possible because they provide the retailer with exclusive varieties, new unique value-added offerings and category management services that bring consumers into that retailer’s stores for products they can’t find in its competitors’ stores. These suppliers have also taken their unique offerings out of the daily “auction market” because no one else produces these items, so the retailer can’t seek lower prices from other suppliers on the open market.
These suppliers are smart and have made investments to acquire capabilities such as new product development and category management because the return on those investments is far superior to the return on commodity production. In turn, they have also enhanced their opportunity to provide commodity offerings to their retail partners as part of a total supply package, and, as I stated in an earlier comment to the Pundit, these aligned supply chain relationships are also the best system for implementing comprehensive food safety initiatives.
I won’t speculate on the outcome of the current investigations — clearly business must be conducted within the law and those who break the law must be punished — but, I will continue to challenge the US produce industry, the potato industry in particular, to follow the example of innovation in UK produce retailing because it is working for consumers, retailers and their suppliers who have moved above commodity production.
Commodity markets will always behave exactly as commodity markets; if produce growers and shippers want a different outcome, they have to learn to play a different game.
Tim O’Connor
President & CEO
United States Potato Board
Denver, Colorado
We appreciate Tim’s kind words and agree that many things that are not obviously actionable contain within them concepts and ideas that, assessed properly, can help each of us in our own businesses and indeed, in living our lives more fully.
As Tim notes, for all the lamentations, there are plenty of successful produce operators in the U.K.
David Langmead of Langmead Farms, Natures Way Foods and Sun Salads is a big supplier to Tesco in the U.K. He has already developed a reputation in the U.S. as a pretty sharp guy, so we don’t think the company is following Tesco to America and has opened Wild Rocket Foods because he loses too much money dealing with Tesco.
Indeed, the fact that Tesco wanted the company to open in the U.S. seems to imply that Tesco really values what David and his team deliver — so much so that they didn’t want to open in America without their “A Team” behind them.
This is really Tim’s message. To those who just want to farm and grow a commodity and sell it at market price — the future is a bleak one of being a price-taker in an age of consolidation, where the choice of markets is dwindling.
At the same time Tim is pointing out that it doesn’t have to be that way. These paragraphs of Tim’s letter are worth another read:
The most successful UK supplier organizations have made themselves as close to irreplaceable to their retail partners as possible because they provide the retailer with exclusive varieties, new unique value-added offerings and category management services that bring consumers into that retailer’s stores for products they can’t find in its competitor’s stores. These suppliers have also taken their unique offerings out of the daily “auction market” because no one else produces these items so the retailer can’t seek lower prices from other suppliers on the open market.
These suppliers are smart and have made investments to acquire capabilities such as new product development and category management because the return on those investments is far superior to the return on commodity production. In turn, they have also enhanced their opportunity to provide commodity offerings to their retail partners as part of a total supply package, and, as I stated in an earlier comment to the Pundit, these aligned supply chain relationships are also the best system for implementing comprehensive food safety initiatives.
The problem with the Competition Commission inquiry in the U.K. is that it holds out hope to aggrieved farmers that someone, somewhere — particularly the government — will come and save them.
Alas, one of the definitions of salvation is a “liberation from ignorance or illusion” and success depends crucially on understanding that the only hope for success lies within each man and each organization.
What do you think David Langmead was thinking when he decided the right name for his bold new venture in the largest market on the planet was “wild rocket”?
An inspiration to us all.
Many thanks to Tim for his thought provoking letter.
