3 farms $51.157 $12.3 $69.175 $122.711 shippers $6.1 $26.8 $2.380 U.S. Fresh Fruit and Vegetable* Value Chain, Estimated Dollar Sales, Billions, 2010 Preliminary$51.157institutional wholesalersfood service establishments$12.3produce and general-line wholesalersimports$69.175$supermarkets and other retail outletsfarmsshippersintegrated wholesale-retailersconsumers$6.1$26.8exportsfarm & public markets*Excludes nuts and pulses$2.380Source: Cornell and UC Davis compilations based on US Census, ERS/USDA, NASS/USDA and other data. Preliminary estimate.
4 Market Shares of Top 4, 8 and 20 U. S. Grocery Chains, Share of U. S Market Shares of Top 4, 8 and 20 U.S. Grocery Chains, Share of U.S. Grocery Sales Excluding Club Stores, 1992–2009percent64%50%37%Source: Phil Kaufman, USDA/ERS, 2010.
5 Consolidation of the Fresh Produce Value Chain Higher retail concentration levels have led to shipper consolidation so today shippers are larger and better equipped to offer services (incl. food safety, traceability, data-based sales and marketing support, consumer insights).Fewer, larger buyers have enabled shippers to reduce their customer lists and to focus more on understanding the needs of key accounts – becoming account-driven.Scale is increasingly important – investment capabilities and competitive wherewithal.Scale can help achieve buying and selling advantages but can only be managed successfully with focused management, real-time data management systems and operational excellence.
6 Top Factors in U.S. Consumer Selection of Primary Supermarkets 2011*Was 64% in 2007**Was 55% in 2007Source: FMI Grocery Shopper Trends 2011
7 Information Technology Information technology, business intelligence will play a vital role at all levels of the value chain going forward.Firms embracing this may gain competitive advantages.This includes a better understanding of consumers and the tactics that increase consumption without sacrificing return for the commercial buyer or seller, e.g., promotional efficiency.SKU rationalization and store clustering are keys to better coordination of supply and demand, lower shrink and greater value chain efficiency – opportunities to achieve via retailer-vendor partnerships – but must be done leveraging best shopper data.Lower retail profits are an obstacle to greater investments in technology.
9 North American Market (US & CAN) Total Retail Sales grew $981 Billion in 2010 (7.7% inc)Top 10 Retailers Account for 69% of SalesTop 20 Retailers Account for 82% of SalesMarket Has Been ConsolidatedFresh Produce Represents 12.5% of Total SalesBerries Represent 10% of Fresh Produce SalesBerry Sales Increased 5.8%Straws 55%; Blues 26%; Rasp 11%; Blacks 7%
10 Who Are Top 26 Retailers Rank Retailer 1 Walmart 14 Meijer 2 Kroger 15 Dollar General3Costco16Wakefern4Safeway17Metro5SuperValu18B.J.’s Wholesale6Loblaws19Whole Foods7Publix20Giant Eagle8Ahold21Trader Joe’s9C&S Wholesale Grocers22A & P10Delhaize23Family Dollar Stores11H.E. Butt24AWG12Sobey’s25Hy-Vee137- Eleven26Aldi’sSource: Supermarket News
11 US Retail Environment Improving RetailerComparable Sales Growth, 2010Comparable Store Sales Growth, 2009Costco7.0%+3.0%Kroger2.8%+2.1%Publix2.3%-4.7%Safeway-1.8%-2.5%Supervalu-5.1%-6.5%Target2.1%-1.6%Walmart US-0.8%-0.5%Whole Foods Market7.1%-0.9%Sources: company annual reports and investor relations announcements compiled by R. Cook.
12 Top Food Industry Trends Shoppers have migrated towards retailers with strong value for money credentials; on-going channel-blurring trendMany retailers have lowered prices to close the gap with discount competitorsRetail strategies include new pricing initiatives, format development, e.g., smaller, price impact, and fresh food formats by non-traditional grocery retailers (Walgreen’s, Target P-Fresh)Cost-cutting to maintain margins, seeking efficiency gainsLowering inventory levels, SKU RAT, painful lessons alreadyRetail corporate restructuring to eliminate duplication and generate cost savingsStore brand/private label growth
13 Supply Chain Imperatives Streamlining the supply chain, improving vertical coordination, involves identifying mutually beneficial strategies and tactics, e.g., promotions, packaging, logisticsIdentifying which activities add more value than costEliminating non-value-adding activitiesDecreasing internal operational inefficiencies – due to lack of ERP’s and underutilization of BI they are often hidden or not considered important enough to attract attention in more favorable markets – but with margin squeeze they countSustainability/social responsibility goals, metrics and verification will become more important and firms will seek competitive advantagesThe same goes for traceability and food safety expectations and requirements; foodservice has led in food safety; and there is a growing and more active government role
14 Berry Market Trends at Retail Value is KeyPack Size and Quality are the key componentsRetailers are Up Sizing PacksSmall Packs are a luxury purchaseMargins have been reducedPressure to provide value to consumers (Price Wars)Available Ads Space reduced 25%Health Message Major Driving ForceConvenienceOrganic Sales ReboundingPrivate Label is increasing
15 Different Consumers, Different Retailers, Different Pack Options
17 Why Retailers Love Berry Consumers? They Spend Money Most Berry Consumers are categorized as:LifestyleCosmopolitanAffluent SuburbanComfortable Country (Rural)Behavior/StageOlder Bustling FamiliesEmpty Nest CouplesStart-up Families
18 What do Consumers Want Primary reasons consumers buy berries are: Great TasteHealth BenefitsMake me feel good & good for my familyOther attributes to be stressedConvenienceVersatilityAvailable year round
19 U.S. Consumers Rank Key Factors Affecting Their Produce Purchase Decisions, Fall 2009 v. Fall 2008 On a scale of 1-5 with 5 being most important.Source: Lutz, Brand Performance and Produce, Produce Business, Jan
20 Policies that US shoppers say they want from their produce providers, 2010 Source: The Hartman Group and PMA, Identifying Consumer Trends in the Produce Category, 2010.
21 2010: How comfortable are you that food grown/produced outside the U.S. is safe? Source: U.S. Grocery Shopper Trends 2010, FMI.
22 Consumer Education How to use Blueberries Why this is good for you Not a special occasion – Good for Every DayAs production matures (Globally)We have to convince consumers that they need to eat blueberries as much as – strawberries, apples, grapesNot specialty itemPackaging implications – encourage larger quantitiesCreate retail and foodservice programs to sell more
23 Berry Category And North American Retail Market Last 52 Weeks
24 Total US - FRUIT Top 10 Fruit Categories - Dollars Fruit – % of Dollar SalesTotal US - FRUIT52 Weeks ending 9/11/2011 – FreshLook Marketing (FLM)Top 10 Fruit Categories - Dollars
25 Total US - FRUIT Top 10 Fruit Categories - Pounds Fruit – % of Pound SalesTotal US - FRUIT52 Weeks ending 9/11/2011 – FreshLook Marketing (FLM)Top 10 Fruit Categories - Pounds
26 Berries Sales Breakdown by Variety 18.2% of total fruit$422M$244M$1,834M$867M
27 Total U.S. Retail Volume and Dollar Contribution by Variety 4-wks and 52-wks ending 8/14/2011 Data Source: SymphonyIRI Group / FreshLook Marketing
28 Total U.S.: Regular/Conventional Retail Volume and Dollar Sales 4-wks, 13-wks and 52-wks ending 8/14/2011Data Source: SymphonyIRI Group / FreshLook Marketing
29 Total U.S.: Regular/Conventional Per Store, Per Year Averages by Segment 52-wks ending 9/14/2011 Per Store Volume Averages-1% vs. PY-3% vs. PY+7% vs. PY-7% vs. PY+12% vs. PYPer Store Dollar Averages+3% vs. PY-1% vs. PY+8% vs. PY+3% vs. PY+9% vs. PYData Source: SymphonyIRI Group / FreshLook Marketing
30 North America Retail Blueberry Sales Chile vs North America Retail Blueberry Sales Chile vs. Total $ and Lbs Last 52 weeks ended 9/14/201138.3%Millions30.2%Supermarket Channel only
31 Chilean Blueberries vs. Total U. S. Ave Chilean Blueberries vs. Total U.S. Ave. Retail price/lb Last 52 weeks ended 9/14/2011Supermarket Channel only
33 Percent Change vs. Year Ago in Berries – Strong Positive Growth for All Varieties Trend Comparison, U.S. Supermarkets, 52 Weeks EndingPercent Change vs. Year Ago inDollar Share of cat % % % % %Source: Perishables Group FreshFacts® Powered by Nielsen.33
35 U.S. Fresh Blueberries (High-Bush): Production, Imports & Exports, 1,000 Pounds, Selected Years Thousand PoundsSources: USDA/ERS, October Fruit Yearbooks thru 2004; GATS/FAS/USDA online queries for 2010 trade and NASS for 2010 production, July 2011.19851998200020042010
36 US Fresh Blueberry Imports by Key Country of Origin,1990-2010 Metric TonsFirst we see that Canada has been a very constant supplier of blueberries over the years. The growth is in winter suppliers.Chile is the largest supplier of fresh blueberries to the U.S. market. Everyone thinks Mexico is going to be the next big supplier of blueberries but it is currently a very small source (0.3%). Growers in Mexico are experimenting with varieties, production regions, and cultivation technologies. They haven’t found the best combination yet, but everyone thinks it will happen eventually. Blueberries have a large number of varieties with chill hours ranging from 50 to 1100 hours, so they can be grown in a lot of places. The best place for blueberries in Mexico may not necessarily be where raspberries, blackberries, and strawberries are currently grown.The important question is how big Mexican production will be and whether it will complement or substitute for production in Florida, Chile, and Argentina. If Mexico does become a dominant supplier, Chile won’t fade quite as fast in blueberries as it has in raspberries. Of all the berries, blueberries has the longest shelf life and can be shipped by boat, the cheapest method of transportation, from Chile.Source: GATS/FAS/USDA online data queries.
37 *Excludes club stores and supercenters US Supermarket* Fresh Blackberry Sales: Quantity, Dollars and Average Retail Price, % Change 2010 vs 2009Source: IRI*Excludes club stores and supercenters37
38 U.S. Fresh Blackberry Production and Imports, P (but USDA/NASS tracks only Oregon where most production is processed)1,000 lbsImportsThis grossly underestimates actual USA production.Back in the early 1990s, U.S. fresh blackberries were mainly a pick-your-own and farmers market industry. Now with better varieties that are sweeter and have a better shelf life, blackberries are part of the national retail market.Blackberries is an interesting story. Mexico does not just fill in during the U.S. offseason--Mexico is the powerhouse. All the big U.S. berry firms have operations there. I have total imports in this chart but Mexico supplies 95% of our imports. Look at the growth since What set this off? Mexico found a great tasting fresh blackberry variety, the Tupi which is a variety from Brazil. I’m calling this a “technology” story. Without this new variety, Mexico wouldn’t have been able to become such a big producer. Consumers like it. With increased production the price has decreased making it more affordable. Mexico’s main problem now is to not saturate the market. Last December some shippers had to tell growers to stop harvesting because prices were so low. There is interest in Mexico now in starting a blackberry industry organization to try to understand the market a bit more and to boost consumer demand in the United States.Back to my technology idea. When growers develop a market in a new location there is always some tinkering with varieties and cultural practices. We see that with all the berry industries in Mexico. Was it easier to use standard varieties in Chile which is much more like California?But the new blackberry variety transformed the industry with a much better tasting berry.The U.S. industry has not been able to catch up to the winter season and expand as rapidly to take advantage of the increased consumer demand for blackberries. The Tupi variety does not grow in most areas of the United States. But the U.S. numbers are higher than indicated. The smaller and less concentrated regionally the crop is, the less complete the data sometimes becomes.ProductionSources: ERS/USDA Fruit and Tree Nut Situation and Outlook Yearbook, Oct for production through 2007; NASS/USDA Noncitrus Fruits and Nuts 2010 Summary, Julu 2011 for production ; GATS/FAS online queries for trade data.
41 *Excludes club stores and supercenters US Supermarket* Fresh Raspberry Sales: Quantity, Dollars and Average Retail Price, % Change 2010 vs 2009Source: IRI*Excludes club stores and supercenters41
42 US Fresh Raspberry Imports by Key Country of Origin,1990-2010 Mt tonsMt tonsMexicoCanadaIn just a little over a decade Mexico went from a tiny supplier to the dominant supplier of U.S. fresh raspberries. What fueled the growth in Mexico raspberry shipments? Importers first went to Chile for raspberries due to its southern hemisphere location and ability to produce in our winter. Chile’s big disadvantage is that is has to ship by expensive airfreight. So Chilean grower-shippers and a large US producer (Driscoll) attempted to develop the right varieties and cultural practices for strawberries in Central Mexico. Central Mexico has grown them for centuries but has had some agrarian issues that complicated production there initially. These issues have been managed and truck transportation to the US gives Mexico a big advantage relative to Chile or even Guatemala. Guatemala lost its leading position due to food safety issues - cyclospora.The story here isn’t U.S. producers going to Mexico for production that is cheaper than in the United States but U.S. producers going to Mexico (and Guatemala) for winter production that is cheaper than in Chile.Guatemala was also an important supplier to the U.S. in the 1990s when Mexico was also developing as a supplier. At that time it wasn’t obvious who would be the dominant supplier. During the mid 1990s, FDA repeatedly linked outbreaks of foodborne illness in Guatemala to raspberries, but not blackberries. Guatemalan raspberries never recovered. Blackberry exports declined for awhile but have been on the increase since 2003.ChileGuatemalaSource: GATS/FAS/USDA online data queries.
43 Understanding the Retail-Supplier Strategic Relationships Positioning for Success
44 Traditional Relationship Model Traditionally, the main, and sometimes the only, contact between a supplier and an retailer was the sales organizationSalespersonSupplier OrganizationCustomer OrganizationBuyerSource: The Hale Group, Ltd.
45 The New Alliance Approach Broadening the communication increases the effectiveness and efficiencies – and creates deeper, stronger and lasting corporate relationshipsSr. Mgmt.InnovationFinanceFood SafetyLogisticsMarketingSalesSeller & BuyerTransparencyProducerOrganizationCustomer OrganizationSource: The Hale Group, Ltd.
46 Becoming Marketing-Driven Becoming customer-centric.Understanding that you will get there faster if you work together.Next level is to become consumer-centric.Consumer-centrism will increasingly be achieved via supplier-customer partnerships.Suppliers and customers must choose strategic partners – align with those who will succeed in the marketplace.Growers should receive higher returns over time if they market through the wide-line berry shippers that have the key accounts and are leaders in the marketplace.Selling through brokers and wholesalers contributes to market fragmentation, disorderly markets and downward pressure on prices.
47 ConclusionsSuppliers and buyers who partner together to identify mutually beneficial actions may gain a competitive advantage in their respective marketsSuccessful partnerships are likely to be based on achieving logistical or operational efficiencies and/or consumer insights that get THE RIGHT PRODUCT TO THE RIGHT CONSUMER AT THE RIGHT TIMEGetting a handle on “meaningful” consumer segments that can be effectively targeted is challenging but today smaller segments may be reached more cost-effectively with “new media” – how to achieve this is a challenge
48 ConclusionsInvestments in information technology are critical to both streamlining the supply chain and firm level efficiencyCosts of meeting certification requirements of various types will grow along with public expectations about ways of doing businessVertical coordination can better match supply and demand (meaning a profitable market-clearing price for efficient growers)Effective positioning requires understanding the fundamentals of the rapidly evolving food and fresh produce distribution system!