A new wave of retail consolidation ahead

10/12/2012 09:15:00 AM
Don Goodwin

Don Goodwin, Golden Sun MarketingDon Goodwin, Golden Sun MarketingWith Supervalu’s announcement that it seeks “strategic alternatives” and the pressure being felt by Tesco’s Fresh & Easy in the West, are we on the verge of a new wave of retail consolidation?

Back in the 1990s we saw an unprecedented uptick in consolidation with acquisitions like Randall/Tom Thumb, Dominicks, Genuardis, QFC and many others.

As a result, we lost some of the most innovative chains in the industry — companies that looked to the fresh produce department to create real differentiation by excelling in areas of variety, freshness, promotion and customer service.

In England, five retailers collectively maintain nearly a 90% market share.

In contrast, the top 10 retailers in U.S. comprise just over 70% of all supermarket sales. The share of the U.S. top 10 has continued to grow with 5% more share in the last 10 years.

The implications of such consolidation are nothing short of dramatic to the fresh produce supply chain.

Fewer buyers will ultimately result in fewer sellers. Large chains look to a limited number of highly committed and capable suppliers.

Being able to provide a consistent supply of quality products at a fair price is only part of the equation.

The demands on suppliers today include extensive food safety programs from farm to truck, traceability, electronic commerce, sustainability, social audits and more.

The challenge of attracting and maintaining growers without a solid customer base is insurmountable. It’s relatively easy to conclude that we will see consolidation on the seller side as well.

As we look category by category, who will be the winners and losers on the seller/shipper side?

Today, the top five shippers of categories like Washington apples likely comprise well over 50% of the crop. Nationally, the big five potato shippers account for nearly 60% of sales.

In California citrus, the top five shippers account for more than 70% of the crop.

In contrast, more fragmented categories like California stone fruit have had a difficult run the past decade. As a result, this industry has experienced some attrition.

How will the smaller companies survive? Frankly, some companies will die.

The key to survival at both ends of the supply chain, retail and seller/shipper, is innovation. In the past 15 years, we have seen the emergence of innovators at retail like Whole Foods, Fresh Market and Wegmans.

All three appear to be thriving in a down economy against more formidable competition than 10 years ago. All three have won with differing strategies.

The constant among them is that they understand their segment of consumers, and they over-deliver to their needs.

They invest in service and knowledgeable employees. The shopping experience they offer is extraordinary.

Interestingly, none of the three can claim the low price position in their markets.

On the seller/shipper side, small to medium companies will also have to find ways to innovate in order to win.

The opportunities come in a few key areas: innovative products, compelling promotions and consumer insights.

Being able to help the retailer grow in the categories you sell is critical.

Look at the tomato category over the past 15 years. Much of the growth and innovation at retail has come from small to medium companies located outside of Florida.

The big Florida tomato companies have had to focus more on foodservice as they have lost share at retail.

Several greenhouse companies have really thrived at retail by focusing on flavor, launching a number of high flavor, higher-cost tomato products.

Retailers and consumers have embraced these.

It’s hard to find a store today that does not offer snacking tomatoes, which have transformed the tomato category because of their innovative packaging and great-tasting product.

I truly think we are on the verge of another wave of retail consolidation.

Some will come from acquisition while part will come from raw market share gains.

However, I am optimistic that smaller, agile companies can thrive through a commitment to true, consumer focused innovation.

Don Goodwin is the owner of Golden Sun Marketing, which provides strategy and marketing services to the fresh produce supply chain from seed to retail. The company’s website is www.goldensunmarketing.com.

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MEIR PERETZ    
California  |  October, 22, 2012 at 12:07 PM

I agree with your assesment Don . We as a seed industry are working very hard to develop innovative products that can sustain our growers in this competitive enviroment .

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