The UK supermarkets have built themselves a reputation over the last 20 years for expecting and accepting only the best from their suppliers. They have done as much as retailers in any country to raise the quality standards of the fresh produce industry around the world. Growers and exporters in all continents have benefited from the guaranteed programmes and fixed prices offered by the UK’s big guns.
However, having established their supplier network, the UK supermarkets have spent the last five years pulling it to pieces. With the aim, at least on the surface, of increasing cost-efficiency, the rationalisation process has proved painful for the supply chain. Supermarkets have shed responsibility themselves in many areas, yet continue to take similar or higher margins while dropping prices to levels that many feel are unsustainable, for suppliers at least.
The high-street price war has seen the big four prepared to benchmark themselves price-wise against the lowest common denominator. In some cases, prices have even been matched to discount chains. Fresh produce is not alone in suffering. But while suppliers broadly agree that there was - and still perhaps is - some slack in the cost structure of the industry, there is also a widespread feeling that the supermarkets are happy to point the finger of inefficiency at suppliers to paper over their own inadequacies.
There is no hard evidence of a change in direction. UK supermarkets are not the enemies of the world’s suppliers. They are simply caught up in a battle that pays no heed to demand or supply patterns, to seasonality, or to spiralling energy, labour and logistics costs. It is a classic “can’t live with ‘em, can’t live without ‘em” scenario for suppliers. Or is it? Emerging consumer markets in eastern Europe, the Middle and Far East are opening up slowly but surely to the western producer. At the same time, producers in those emerging markets are adding to the oversupply problems in western Europe by taking full advantage of accession to the EU or free trade agreements.
The dissenting sounds emanating from the southern hemisphere in particular are becoming louder. Perhaps the only way the UK market will ever be forced to right the balance is if it faced a prolonged situation of supply shortage. There has never been a lack of suppliers willing to jump into any void in the past, but alternative markets willing to pay decent money might put a stop to that. The UK retailers’ belief that they will always be favoured in the global marketplace has long been fostered by suppliers who said as much. But favour can only run so deep, and the weaker link in any partnership still requires a reason to play the game.
In week three this year, South Africa shipped around two million cartons of all types of grapes around the world - half the volume of last year. While this reflects a slightly later season, at least one trade source believes it is just one example of the way that southern hemisphere exporters are beginning to tone down their volumes. “There is no shortage of product in the UK,” he says, “and if anything the balance between demand and supply is far better this year. But it is indicative of something. In the past, South Africa used to use the UK to sell as much of the surplus product as possible - it would now appear that this market is not being trusted to do that. A lot of people have got fed up and turned to other products, such as wine and raisins. They have had enough of the supermarkets dictating their direction to them and would rather make some of their own decisions.”
However, staying with South Africa, while the UK continues to become a tougher and tougher market for the world’s exporters, the country’s citrus producers feel it is unlikely to lose position. “The UK will obviously remain a mainstay in the SA fruit scene,” says Gerrit Booyens, chief executive of Citrus SA.
He says the key issue for South African companies exporting to the UK will be to improve supply-chain efficiency and competition to ensure consumers choose citrus above other products.
South African suppliers need to trust their own information and stand firm against the power of the retailers, he adds: “The (supply) channel partnership is currently still driven by the sense that only the retailer determines the rules of the game.
“The fact that many producers will be paying in this year tells me that either the retailers are putting the screws on the growers or that growers do not stand their ground and or do not heed the information signals available.”
Booyens says producers need to use the wealth of market information available to ensure they are meeting market requirements. At the moment, this isn’t being done: “Information is used only to determine the size of the accident rather than being used to avoid the crash.”
The UK remains Capespan’s single biggest market in Europe. “And as a percentage of our European sales it has been fairly constant for many years,” says Geoff Green, procurement director at Capespan Continent. “Eastern Europe I would expect will grow at a fast rate compared to other markets. Capespan continues to play a role in virtually all markets in Europe as we have always done. It is very important for our growers to be able to find plenty of market options for them, but also in terms of efficiencies throughout the organisation. We also learn a lot from looking at all European countries from a consumer and retail point of view. We have customers throughout North America, the Middle and Far East and I personally think India is a great opportunity. Africa, outside of South Africa is also taking a lot more fruit as imports.”
Which appears to be an example of a responsible outlook on marketing, but Booyens says there is little anyone could do to stop the irresponsible behaviour of some in the sector having an impact on those who do heed the signals and behave responsibly.
Across a number of categories, the propensity of suppliers to fly to a new market opportunity like moths to a light bulb has destroyed many areas of decent potential very quickly, says another source. “The problem is, at the sign of any opportunity, too many exporters send too much product to market. Markets then become flooded - like Japan with grapefruit for instance - and ruined by oversupply in no time.
“Marketers of fruit have to retain their common sense - if a market is good one year and appears to have more potential, that does not generally mean you can double the volume you send in there the next year and expect to maintain prices and fulfil that potential.”
Booyens says the lack of communication within the supply chain to the UK leaves producers at a disadvantage. “More and more UK markets are engaging more directly with producers and producer groups and rightfully squeezing the supply chain to get the maximum benefit.
“Whether the producer gets his equitable share of the “squeeze” could be debated and I believe that few producers will be able to answer the question due to a lack of information sharing.”
He says the UK market offers the opportunity to SA producers to set up extremely advanced information sharing systems, due to the high proportions of programmed fruit flow.
“I also believe that the fruit flow financing could be streamlined significantly, further driving costs out of the system. The volume of fruit ending in the wholesale markets will continue to determine the value of the market price and needs careful management.”
The South African position is replicated, to a certain extent, across the southern hemisphere. But what about the northern producers?
Spain represents more than 30 per cent of the imported fresh produce sold into the UK each year. The changing nature of the world market and the differentiation between those markets that have already matured and those still in development are not lost on Spain and some of its biggest players, such as Anecoop. “Spain’s priority markets are those within the EU, but it is losing importance as a supplier in markets that are further afield and where the main competitive factor is price,” says Ignacio Juárez, who is charge of the northern operations unit in the commercial office of the co-operative group.
“In the case of citrus, Turkey, Morocco, Egypt and Greece have taken market share especially in eastern Europe, and in the case of Turkey this has also happened with watermelon. Nevertheless Spain continues to be the country that is best placed to offer service; we don’t just offer product but add value. Clearly as a country we are losing ground in loose product with low technical input. But wherever there is a need for a greater technical specification in packaging and a flexible, on-going provision of service, Spain confirms its position as market leader on a daily basis.
“For example, we can supply a vast range of different lines and configurations to the UK that would otherwise have to be packed with huge additional cost in the UK. The future lies in considerable effort and investment in research and development and a high level of specialisation in each category in which we strive to be market leaders.”
Belgian exporters too have recognised the need to adapt to new situations and take advantage of opening routes to market. Belgium’s fruit and vegetable auctions have realised their position on world markets is niche and to that end the six largest auctions come together under the umbrella organisation LAVA which co-ordinates and markets the Flandria quality label in association with the national association of fruit and vegetable auctions VBT, and the Flanders’ Agricultural Marketing Board, Vlam. “Flandria is actually too small to make use of many new market opportunities as we don’t have enough supply,” says a spokeswoman. “So we try to distinguish ourselves by the quality of our products not the quantity. For instance we have a whole new range of tomatoes including black tomatoes and pepper shaped tomatoes which are available in small quantities for a market niche.
“The UK market is stable for us, but new member-states of the European Union such as the Czech Republic are gaining in importance. It is not just because the barriers have gone in Europe, but also because a lot of the big supermarkets have emerged over there such as Lidl, Aldi and Tesco and the people have become more prosperous. For example, we are exporting a lot more volume to the Czech Republic - 4,841 tonnes of leeks from January to September 2005 which was more than double the same period in 2004, and 1.1m heads of lettuce -400,000 more heads than during the same period in 2004. For the future, Poland and Hungary particularly and other east European countries look quite interesting. The products we can import to those markets are leeks, lettuce and tomatoes which we are already sending to the Czech Republic.”
Davis of Louth is something of a rarity as UK fresh produce companies go: a family firm with a history of more than 100 years that not only sources from the UK and worldwide for its customers but also has an impressive export business.
“We export cauliflower from March until June to Portugal and Spain when it is too hot to grow the product on the Continent,” says md Peter Davis. “We probably do about a truck a week. We also send iceberg to the Netherlands, Scandinavia and Finland and last year we took some of the Dutch market share for potato and onion exports to Russia and the Ukraine.
“Everything is contract grown to programme now, and we find it complements our UK business very well from the point of view of different size requirements. Before, the UK used to want onions in the 60-80mm profile and the Baltic states wanted 40-60mm. That has changed now and the supermarkets are demanding 40-60mm and Russia wants 60-80mm. We also supply mixed salads for Saudi Arabia and Dubai although that is mainly an ex-pat demand and our customers are some of the large hotels. We have even done some exports to Australia. This was just a trial last year and we sent some salads, raspberries, beans and blackcurrants. Now this year that customer wants UK strawberries and raspberries.
“The world is getting smaller and sometimes it is possible to negotiate some very interesting freight rates.”
Redbridge Holdings is another UK-based company that has seen a wealth of overseas activity in recent years. However, while the business has been busy opening up offices in Spain, New Zealand and South Africa, as well as partnerships with organisations in Egypt and Morocco, remains firmly focused on the UK.
A spokeswoman for Redbridge says: “At the moment, there are so many opportunities still in the UK market that we haven’t exploited. Our overseas offices and partnerships are either aimed at breeding or development of new varieties, or for procurement for our home market. We’re not looking to use them to start targeting consumers in those countries.”
She says there is still considerable growth in the UK. “The health message is beginning to filter through and the government is still backing the 5 A DAY campaign.
“At the moment, consumers are still only eating around two portions, so there’s a long way to go yet.”
Despite the competitive nature of the UK, Redbridge is still confident it remained viable. “You don’t go into any market unless you’re going to make money,” says the spokeswoman.
So, there is still a good deal of commitment to the UK market, but it is evident that suppliers in all quarters are eyeing up ways to spread their product around and optimise its potential.
The volume and value of fresh produce should rise in the UK in the next few years, as government and industry-backed campaigns to boost consumption take root. But should suppliers decide to vote with their feet and move product away from the UK supermarkets, the high street giants will be faced with an interesting conundrum. Stripping value out of the fresh produce category has failed to deliver vastly improved volume movement. The guarantees are no longer in place for suppliers - but will the UK supermarkets alter their strategies to ensure they continue to receive only the best?
FFB: PRICE NOT THE ISSUE FOR UK EXPORTERS
UK producers will have to add value or differentiate their products if they want success on the export markets, says David McNair, chief executive of Food From Britain.
“I don’t think there’s much point trying to compete on price when it comes to export. Our geographical location and economy does not make our produce attractive in that way. There can only be one person who gets to be cheapest in town and it won’t be us.”
Differentiating a product either through the use of brands which offer something extra, or by adding value to the product are key if producers are looking to tap into an export market.
He points to the likes of Tyrells Potato Chips as a company which has had considerable success overseas, winning best new exporter of the year title at the FFB Export Awards.
“Tyrells has had a lot of success in the UK with things like parsnip crisps, and on the strength of that, we took them to France. The initial French reaction was, ‘the English eat parsnips? We feed them to our pigs’, but Tyrells has managed to establish a foothold in that market.”
He points to that as an added opportunity for UK producers, as an increase in demand for Tyrells’ products, whether in the UK or France will lead to an increase in demand for the raw material.
Part of the success of products like Tyrells has been the move in France to embrace the English lunchtime culture of just eating a sandwich. McNair says trends like these open up opportunities for UK companies.
“In overseas markets, eating habits are changing, and because the UK is ahead of the game, it gives us the opportunity to introduce things into those markets.”
He points to Geest as an example. “We’ve done a lot of work with them on prepared salads. They’ve been able to offer EU retailers prepared salads, and prepared fruit products that were developed for this market.”
However, he warns against overstretching yourself, pointing to the Jersey Royal as a prime example. “They had a brand that was significantly different, particularly based on geography and seasonality, but what they had failed to recognise was that a key part of their offering was the flavour and texture.”
He says that in the race to fulfil retail and consumer demand, the Channel Islands changed production methods for the potato, turning away from traditional seaweed fertilisers for more modern products that would boost volumes and extend the season earlier and earlier.
Unfortunately, the net effect was the taste suffered and the consumer switch-off forced producers to re-evaluate why their product had initially been popular. “Consumers were disappointed, and the producers had to move back to what made their product premium in the first place; limited quantity, limited availability and high quality.”
He thinks there is definitely potential out there and the market in the UK could inadvertently stimulate the export sector: “There are opportunities. In some ways, necessity is the mother of invention and the pressure which is on the trade, in terms of price, is encouraging them to look at different way of doing things.”
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