The Produce Aisle with Armand Lobato ( Photo by The Packer staff )

The goal is lofty. “Meet or beat last year’s sales and profit.”

Just about everywhere I’ve worked, this message echoed throughout retail management ranks as we budgeted, monitored, and ran the final numbers at the end of each quarter or year.

While it was a healthy challenge, “meet or beat” also poses a serious business threat.

According to William Perreault Jr. and E. Jerome McCarthy in “Basic Marketing: A Marketing Strategy Planning Approach,” they describe “The Wheel of Retailing Theory” as such: New types of retailers enter the market as low-status, low-margin, low-price operators and then, if successful, evolve into more conventional retailers offering more services with higher operating costs and higher prices. Then they’re threatened by new low-status, low-margin, low-price retailers — and the wheel turns again.

One of the contributing components of such evolution are retailers operating on the “meet or beat” philosophy.

Two points here. First, profit is not a dirty word. Profit is why retailers exist, to satisfy stockholders. 

Secondly, profit keeps a business afloat. It pays salaries, the light bill, and allows for new store investment and growth. 

Just like individuals, at some point retailers can give in to greed. 

“Meet or beat” dictates there must be more in the register tills. The only way for retailers to do either (especially “beat”) is to drive sales, reduce costs, alter pack sizes (don’t think consumers notice when their 12-ounce peanut butter brand becomes 10 ounces at the same price?), or the all-too-easy method — raise prices.

Once retailers take that price-raising step it becomes habit-forming. Even small increments eventually mount to a threshold where a new competitor evaluates the market and says, “Dominant Market Leader chain is selling produce at a whopping 65% profit margin. In our no-frills format, we will undercut them and sell produce at 35% margin, be happy with the profit from added volume and look like heroes to the consumer.” 

And the wheel turns again.

The alternative? The established chain can protect its market share by operating aggressively, but conservatively. It can use its size to leverage volume purchasing, promote produce with mass-merchandising, and just as ads often put more money in the bank (albeit with low markup percentages), it’s perfectly all right in this produce scribe’s opinion to focus on the “meet” — last year’s numbers. Especially if it protects market share, and the ability to survive.

Of course, many other factors weigh in and the wheel of retailing theory doesn’t explain everything. Upscale retailers versus “retailer X” are often apples versus oranges comparisons. 

However, in the world of food purveyors, everyone is a competitor.

Armand Lobato works for the Idaho Potato Commission. His 40 years’ experience in the produce business span a range of foodservice and retail positions. E-mail him at lobatoarmand@gmail.com.

 
Comments