Supermarkets as growers: Trending topic in Japan

08/30/2012 04:50:00 AM
Tom Karst

National Editor Tom Karst  Can you see a day when Wal Mart buys prime apple orchards in Wenatchee? Or when Whole Foods leases a coastal strawberry farm in California? Or when Publix markets private label Vidalia onions from its own farm?

The day may not be that far off, if developments in Japan are any indication.

Supermarkets in Japan are directly contracting with growers in an expansion of private label branding efforts for fresh vegetables.

This story from the Daily Yomiuri was noted by fellow discussion group member Luis P. The story reveals that Japanese supermarkets are increasing the amount of vegetables produced by themselves and contract farmers.

Why assume the risks of growing? According to the story, operators like Daiei Inc. and Ito-Yokado Co. in Japan say they  can improve their produce quality, reduce pesticide use and trim their distribution costs. 

From the story:

Daiei aims to increase sales of its private brand vegetables to 12 billion yen by fiscal 2014, from 930 million yen in fiscal 2011. The company also intends to increase the number of farmers under contract from 450 to 2,000 during the same period.

Ito-Yokado Co. sells vegetables produced at the company's farms through its private brand. In addition, it sells vegetables produced by 5,000 contract farmers under a brand called "Kaoga Mieru Yasai" (Vegetables for which consumers can see the producers' faces).

Private brand labels often carry photographs of the producing farmers.

"It's easier to keep the prices of private brand vegetables stable even when the market prices of vegetables are surging, because we produce vegetables based on an annual plan," a company spokesman said.

The company said it plans to increase both the numbers of its farms and contract farmers. Currently, its private brand vegetables account for about 20 percent of its entire sales volume of vegetables, but Ito-Yokado aims to increase the percentage to 30 percent as soon as possible, a public relations official said.

Aeon Co. also produces private brand vegetables, mainly at eight farms directly managed by the company. Sales still are only about several percent of all vegetables sold by the firm, but an Aeon spokesman said the company expects the vegetable business to become more efficient as productions costs are clarified.

Somehow I think the typical U.S. supermarket chain is more than challenged executing its business plan as it exists now. Finding reliable clerks who can keep produce in stock is enough of a challenge. Why add the worries of rising fuel costs, pesticide regulations, uncertain farm labor and fickle Mother Nature to the list of worries?

What's more, I think any vertical integration by supermarkets to the farm level would immediately draw negative attention and concern about market concentration. It also runs directly counter to the consumer affection for sourcing from small, local growers.

If any supermarket would attempt to grow or contract supply for a private label brand, I would think it would need to be an upscale retailer like Whole Foods.  There would be an undeniable cachet in selling produce from your own pristine farm, produced in your own quirky way.

It may the lure of private label leads to more contract arrangements between supermarkets and growers, but I don't see supermarkets wanting to get in the business of farming.

How do readers feel about this news from Japan? Are retailers going to wear farmers' caps in the apple orchards of Washington and the onion fields of Georgia?



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