Rationalisation is a concept the fresh produce industry is all too used to, and the potato sector is no different. As competition on the high street increases, the pressure being exerted through the supply chain is only likely to increase.
In the past year, the potato industry has certainly felt that pinch, with a number of high-profile casualties as the retailers seek to squeeze every last drop of efficiency out of their suppliers.
Romney Marsh, QV Foods and MBM are just three of the suppliers who have felt the harsh pinch of rationalisation, and, as in the case of the Romney Marsh Potato Company, which was forced to make 81 of its 108 employees redundant, some have been hit harder than others.
The company was the victim of Tesco’s supply chain restructuring early this year, which also saw the potato supply of QV Foods moved under the control of Branston. QV will effectively continue to pack until March 2008, when its Tesco activity will cease, bringing its volume completely under Branston. However, at the time Duncan Worth, QV director, said the company would continue to work with Tesco to develop prepared potato products.
Meanwhile, Tesco was not the only multiple seeking to trim down its potato operations. Sainsbury’s, as part of its recovery programme following a number of lean years, was wielding the axe freely across its categories, and the potato sector did not escape attention.
A move from four suppliers to three saw Cambridgeshire-based MBM cast adrift in December last year, while Shropshire’s Greenvale AP picked up the extra business and took on an additional 130 staff as a result.
John Maylam, Sainsbury’s potato buying manager said: “By streamlining our potato supply base, we are in a much better position to improve efficiencies for everyone involved in the supply chain. We recognise the consequences our decision will have on MBM but we’ll be working closely with them to manage those changes.”
The move was another blow to the company, which had also failed to gain Tesco business earlier in 2004.
For Branston, the restructuring of Tesco’s supply chain was a win, and Richard Clark, commercial director, says rationalisation makes sense.
“Around 10 years ago, the Tesco potato buyer would only have bought potatoes, but now it’s one of a lot of products they deal with because they only have two [potato] people to talk to and we can do a huge amount of work on their behalf. It frees them up and allows them to strip out costs.
“From our point of view, we’re getting more and more volume and greater security in the long term. There’s also a mutual dependency now. Tesco is our business, we wouldn’t have one without it and they need us to provide good quality product to keep their customers happy.”
Roy Maynard, Tesco buyer, says the majority of retailer led rationalisation has been focused on the packers, not the growers. “In recent years the supply chain has changed where we’ve got probably more growers than ever before because we see them contributing to the business - so there has been no rationalisation of growers.
“We have rationalised our supply business so we have got fewer factories packing potatoes. We have fewer factories but these are working better, so they are working 24 hours, seven days a week, instead of a few hours, a few days a week. Therefore they are more efficient.”
He says the benefits to Tesco are considerable: “We now have a dedicated team of suppliers that is the best in the industry, which in turn has grower groups that are the best in the country. We could not run our business successfully without that team of growers which has been demonstrated in recent years with our market share.”
At the same time he says suppliers have benefited from having a more efficient supply chain and consumers are getting the potatoes they want in store, year-round.
However, while the retailers may not have directly rationalised the growers, market conditions have certainly had an impact on the grower base, says David Walker, chairman of the BPC.
“If you look back 20 to 30 years ago, potatoes were grown all over the country. Over the last 15 years it’s steadily migrated west and east and into the north and Scotland. There’s very few potatoes left in areas like Oxfordshire.”
Walker points out that, in the past eight years, the number of growers has fallen from 9,000 to just 3,000. Over the same period, farm size has also increased, from an average of 10 hectares eight years ago, the average size now is more in the region of 35 hectares.
“The industry had seen steady evolution, with yields increasing and area falling to around 120,000 hectares while consumption remained static. Output was consistent at six million tonnes for a number of years, but then rationalisation suddenly accelerated in the mid-90s.”
A main driver behind the change, he says, was the demise of the potato marketing scheme in 1997, which had followed the end of intervention buying in the early 90s.
“Prior to that, the market was regulated and growers were always able to receive a minimum price. If their potatoes didn’t make market they could sell it into intervention,” says Walker.
Market control has also changed over the last 30 years, with the retailers now making up around 80 per cent of the fresh market, says Walker. “None of this is new and the industry has been adjusting to those pressures for the last 30 years, but it has significantly speeded up in the last five to eight years.”
The changes in the market have brought benefits however, with the skill levels and professionalism among growers improving considerably. “Go back 10 years and people grew potatoes. But now they need to know which part of the market they’re going for, they have to look at what the consumers want.”
However, those changes also present management difficulties, particularly when the focus is on lean, efficient operations. “It’s a real challenge just simply setting time aside to plan and think, and that is time I regard as critical,” says Walker.
He says there needs to be collaboration among growers: “Everybody should be looking to some form of collaboration, anyone not doing this is going to find themselves with the thin end of the wedge in a few years time as everyone else will have done it.”
The BPC is not immune to the changes and rationalisation in the sector either, and Walker says it needs to evolve and become more sophisticated, targeting its information at the right people in the sector.
“We need to be looking forward and predicting future trends, so we’re able to alert industry to what’s going on. We’re effectively a business development unit, thinking longer and broader than industry can or has the time to do generating information on research & development and market changes that can help shape business plans and growing practices.”
But while a large amount of the rationalisation in the potato sector has been driven directly, or indirectly by the retailers, is the retail sector the only solution?
Many in the industry had written MBM off following its massive retail losses, but rather than just fade away, the company has continued to push itself on. It still retains considerable interest in the foodservice and wholesale sector and remains one of the UK’s largest potato processing businesses.
Its launch of the recent Potato Lovers brand is hardly the sign of a company that is down and out. The company says the brand is aimed at providing “chefs and food lovers with top quality potatoes”.
In fact, MBM’s managing director, Pepe Bascetta, speaking at an industry dinner, said the company was on the road to recovery.
He said the previous year had “not been one of the most enjoyable years for MBM. We suffered an awful lot of loss of contracts and as a result of that, obviously we have eroded some of the grower and customer confidence.
“However, on a more positive note, MBM is beginning to get some recovery. We’ve got a new management team in place and while we know we’ve got a lot of work to do, we are beginning to turn the tide and win some contracts.”
He acknowledged that improvements will take some time to come into effect, but remained confident for the future, predicting the business will have recovered more volume by 2007 than it had lost in 2004.
So have we reached a peak with rationalisation, or is there more to come? Walker believes the industry is in the final phase of consolidation, but says there are still some harsh times ahead. “Over the next three to five years we will see around 25 per cent of growers leaving the industry, although there won’t be a corresponding drop in total growing area,” he predicts.
“Unless smaller growers have a niche market outlet, I think they’re going to find it increasingly difficult to meet the higher specifications needed and those who have expanded too rapidly, they’re going to have to make some harsh decisions. I think we’ll see a shift in the average farm size from 35 hectares to 50.”
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