The future of the global apple industry is no longer solely in its own hands. It is more and more determined by the decisions made by a few giant retailers and fast food chains. The success of apple firms (whether growers, packers, shippers, exporters or importer) will depend on how well they structure their businesses to meet the needs of those retail giants.
In recent decades, the large retailers in the developed world have rather easily crushed the competition from small independent grocers, greengrocers and weaker retail grocery chains. They now find themselves battling with each other for market share. Many prominent names in the food retailing business have already disappeared, and more are likely to succumb in the near future. The apple industry needs to understand the pressures the remaining giant retailers are now under and seize the opportunities this offers them to add value to these retail businesses.
PRESSURES BEARING DOWN ON MAJOR RETAILERS: FOUR KEY OUBLIC PRESSURE AREAS
Every retailer is vulnerable to inroads from discounters that cut prices below customary (comfortable) norms through shrewd buying, internal efficiencies or sheer rashness. Each decade produces a new wave of discounters trying to break into the low end of the mass market. A retailer can lose its grip on that mass market if it fails to meet the discounters on price or to offer customers a compensating edge in status or pleasure. So, big retailers always want quality merchandise at highly competitive prices. They do not want any price surprises.
Big retailers are also very sensitive to their image with their four key public pressure areas, customers, activists, the financial press and the popular media.
Their ideal customers are those that return regularly to their local supermarket because they regard it not as a branch of some distant, impersonal chain, but as their local community store. Retailers use many tactics to build that personal connection. Price, consistent quality, good produce and meat sections, pleasant facilities and friendly staff are some of the basic ingredients that make a store attractive to the community. Retailers also build loyalty through loyalty cards, reward programs and service conveniences such as banking or travel desks. Most have expanded their portfolio of retailer brands across a wide array of categories to maintain loyalty. In recent years, many have tried to brand produce items or get exclusive rights to handle certain cultivars.
Activists are another important client group. Like a smaller wrestler that uses the weight and momentum of a bigger opponent to worsen that opponent’s fall, activists have learned that the bigger the retailer, the more it is vulnerable to moral blackmail. They know what “hot button” issues will cause retailers’ resistance to crumble. Hints that any action of a big retailer might be harmful to the health and welfare of consumers or children or the elderly or the rain forests or other threatened segments of society bring swift responses. Activists with varied causes continue to prod retailers into stressing non-economic goals. They are skilled at turning politicians, civil servants, the courts and the media into allies in pressing retailers to adopt the activist agenda.
A third vital constituency is the financial press. Large retailers have become such giant users of capital, and creators of employment and wealth, that their performance is followed as closely as the premier league sports standings. Every blip in sales, market share or earnings is the subject of intense post mortems and prognostications. Retailers will take desperate measures to improve their standing in the grocery league table.
However, the most feared and most solicited constituency is the mass media. Retailers crave any news story that will burnish their image with the general public. They dread any negative story that may portray them as price gougers, unkind to chickens, careless of public health or delinquent on any of the moral criteria set by activists or their allies.
THE CHALLENGE FOR THE GLOBAL APPLE INDUSTRY
The choice facing much of the global apple industry is not just learning to swim with the sharks without being eaten, but prospering among those same sharks. (A small segment may be able to avoid the sharks altogether). The apple industry must do this while continuing to combat all the normal uncertainties that arise in the growing, handling and marketing of a perishable, perennial crop.
The apple industry must satisfy the, sometimes contradictory, demands of fickle consumers for high quality and low prices, novelty and stability, excitement and reliability. It must deal with buyers that want uniformity, certainty, competitive pricing and satisfaction for their different publics. It must help the giant retailers meet their sales, market share and profitability goals. It must help them burnish their good image with the financial press, the mass media and the general public.
To achieve that, the apple industry, like every other food industry, must submerge the natural tensions that arise between seller and buyer and become a real partner with the giant retailers in helping them satisfy their different publics. The apple industry in total, or any firm in the industry, can no longer directly maximise its own welfare. It must do so indirectly by helping the big retailers maximise their welfare.
SUBORDINATING ONE’S OWN INTERESTS DOES NOT COME NATURALLY TO AGRICULTURE
The apple industry must somehow manage the inherent conflicts involved in seeking its own good by subordinating its interests to those of the big retailers. For the independent-minded folks in agriculture and food, this will be difficult to accept.
Retailers’ perspectives will often differ from those of their suppliers. A recent example is the battle over the future of the Pink Lady label. The sponsors of the label had been able to assess growers, packers, marketers and retailers a fee to protect the exclusive value of the Pink Lady apple. However, some major retailers have been refusing to pay that fee and have pressured suppliers into providing the premium apple under a store brand “Pink” label. The suppliers face the choice of supporting the Pink Lady Alliance’s demands and losing the retailers’ business or meeting the retailers’ demands and sabotaging the Alliance’s exclusivity goals.
Can suppliers win this sort of battle? I don’t think so. Retailers have long experience in watching manufacturers of exclusive brands introduce innovations in product, packaging and performance that build demand for items from soup to soap powder. Once there is widespread public demand for that item, retailers introduce their own private label clone. Replacing the branded Pink Lady with an Asda or Morrison “Pink” apple is simply a repeat of what has become commonplace in many products. In the words of retail consulting group, Retail Forward: “Private brands will increasingly be used to reinforce the retailer’s own brand values and unique personality by extending those with a strong lifestyle appeal across categories to create storewide umbrella brands that resonate with core customers.”
This will be equally true for large fast food chains such as McDonald’s and Burger King. Activists have tried to saddle them with much of the blame for the world’s obesity epidemic. As a result, fast food chains are making determined efforts to add fresh produce items to their limited menus. If they are successful, over the next decade, they could become increasingly important markets for fresh apples and apple products. They are likely to be even more rigid in their requirements from suppliers and less tolerant of producer brands.
HOW APPLE SUPPLIERS CAN BETTER SERVE RETAILERS’ CORE CUSTOMERS
Apple suppliers should have a significant advantage over both food retailers and fast food chains in understanding core apple consumers. After all, retail buyers must deal with thousands of produce items. They cannot possibly understand any one item as well as the industry whose business depends entirely on that item. In the past, the apple industry has abdicated its responsibility for understanding apple consumers. However, it if is to become a valuable partner of the giant retailers and fast food chains, it must first take back that responsibility.
The apple industry has to regain its role as the expert in understanding different segments of the consumer market for apples. It needs to know who buys, when they buy, why they buy, what they currently like about apples, what they dislike. It needs to know what intrinsic qualities, such as colour, taste, texture, etc. are crucial to different consumers; and what extrinsic attributes, such as packaging, process, status, environmental friendliness, promotional appeals, uniqueness, etc, can sway purchases. It needs to understand what motivates different types of consumers to buy more apples. It needs to know how all these factors are changing over time and be able to predict likely future directions.
Such consumer analysis will probably indicate that the apple industry is currently supporting a number of obsolete products and unproductive marketing and promotional methods. These need to be weeded out and replaced with products and marketing and promotional methods that can build consumer demand.
THE BUCK STOPS WITH THE APPLE INDUSTRY ITSELF
The apple industry must bear the ultimate responsibility for building store traffic (and sales and profitability) for apples in retail and fast food outlets. It needs to be able to demonstrate to retail buyers that they can depend on it to know what will and will not work among apple consumers. If it fails to achieve that, retailers will find many other alternative fruits and fruit products that can be used to woo their core customers and per capita consumption of apples will continue to erode.
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