The New Dynamics of Produce Buying & Selling The 2001 Becker Forum February 12, 2001 Research Conducted by Food Industry Management Program at Cornell.

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Presentation transcript:

The New Dynamics of Produce Buying & Selling The 2001 Becker Forum February 12, 2001 Research Conducted by Food Industry Management Program at Cornell University Wen-fei Uva Dept. of Applied Economics and Management Cornell University Modified by Georgia Agriculture Education Curriculum Office

RetailIndustry Structure... …fewer buyers??

Supermarket Structure % of total sales Sales of Top 8 Chains as a % of Total Grocery Sales

Top Line Kroger (28.2) Fred Meyer (14.9) 43.1 Albertson’s (16.0) American Stores (19.7) 35.7 Buttrey (0.4) Sessells (0.2) Safeway (23.7) Dominicks (2.3) 26.5 Carr Gottstein (0.5) Ahold (14.3) Giant Food (4.2) 18.5 Recent deals AcquirerAcquiredCombined value $B

Supermarket Structure Percent of sales Top 10 Firms as % of Total Sales...by country Percent of total sales

Wal-Mart Sales,

Wal-Mart Stores, 1999

Source: Bill Bishop, Kraft Extrapolations * Projected * Food Manufacturer Sales Top 20 Customers

DepartmentProfile

Top Line  Produce departments are growing at a faster rate than supermarkets:  sales  space  SKUs  Compression of SKUs currently-- intensifying in the future department profile MOREPRODUCE=GREATERPROFITS

Produce Sales percent of total store sales

Department Size square feet  Average increase from  46% small firms  40% mid-size firms  29% large firms

SKUs *McLaughlin & Perosio (1994)

Top Line  Buyers more focused on supply side-- negotiations, procurement & logistics, NOT demand side-- merchandising and consumers the buying process

Produce Buyers number of buyers per firm Responsibilities Responsibilities 4 4 supplier interaction 4 4 order entry 4 4 price changes 4 4 invoice problems 4 4 store level assistance

Sources Over Time percent of produce purchases

Sources by Firm Size percent of produce purchases

“Spot Buying” percent of produce purchases

Contracts

SupplierProfile

Concentration importance of retailers’ top 10 suppliers

Top Line Sales of Top 10 & Top 20 WA State Apple Shippers percent of total sales

Produce Suppliers “Average” firm 219 suppliers today BUT decreasing to 208 by 2004

Preferred Supplier Attributes  Top Five Attributes  delivers consistent quality  consistent on-time delivery  price protection on rising markets  offers PLUs/UPC coding  large supply to fill majority of stores Year-round product availability not very impt very impt

Technology

Electronic Technology percent of produce purchases using

Bottom Line  Expand control  consolidate horizontally  integrate vertically  Develop new products  hybrids, niches, packaging  Undertake demand expansion programs  Adopt cost reducing technologies  Develop new distribution systems Grower/Shipper Strategic Responses