Greeks, Kiwifruit, & Supermarkets – They All Come Together In The NBR

I have just returned from the annual Horticulture New Zealand conference in Rotorua.  After a day and a half at an industry gathering one cannot help but come away with some thoughts about an industry’s future. And as I was pondering the future of the New Zealand horticultural industry, I opened last Friday’s NBR which I had not had a chance to read. Some weeks reading the NBR takes a matter of minutes.  This time though there were three stories that caught my eye.

The first one was the front page story dealing with the European Union debt crisis.  The fundamental  problem they have is that within the Eurozone all countries borrow at the same interest rate – but not all countries are able to repay their debts at the same pace, or at all as the case may be.  And that anyone can think Greeks and Germans have the same characteristics is downright mind boggling!

The second piece of interest was a lead article by Roger Kerr, Roundtable Supremo, on the kiwifruit single desk structure and what he thinks needs to happen.

Some years of my misspent youth had me occupying the Head of Produce Merchandise chair at New Zealand’s corporate superchain (as opposed to co-operative – and yes, we only have two of those).  In that role, to be honest, I did not give kiwifruit much thought.  I worried more about bananas, apples, potatoes and tomatoes – the real staples of the produce department.  Kiwifruit were those things people put on top of Pavlova, you know.  Similarly, Zespri and the kiwifruit industry at large understood very clearly that their real markets were not the 4 million ‘Kiwis’ occupying the motherland but the Japanese and and the Germans who were fascinated by kiwifruit, all things New Zealand and could be persuaded to pay decent money for the hairy little ‘buggers’, to borrow from Enza.

The global supermarket industry was an early adopter of networking before business sectors at large started to place any value on that concept and before social media platform began to connect us with God and the world.  I was in and out of European and US supermarkets on a constant basis and was forever hosting colleagues from those countries when they came visiting here.  There is little difference between the operational behaviour of fresh produce value chains in countries of a similar economic standard  that start with a grower, finish with consumers and involve supermarkets at the half way point.

I do understand where Kerr is coming from, in principle. But he has a few facts wrong – which is ok, given that he is a generalist rather than a specialist, but generalists who broadcast their views and want to be taken seriously ought to seek specialist advice before they start broadcasting!  So what are these facts I am talking about?

Firstly, Zespri has managed to build an enviable niche position based on innovation, brand, brand values and product quality in the face of increased global competition.  It therefore represents a degree of critical mass in key markets and key channels which allow it to exercise leverage and set the catgeory tone.

Secondly, kiwifruit growers have everything to fear from deregulation.  Supermarket buyers and category managers  typically allocate their time on the basis of the category’s importance to the business.  Bananas tend to account for circa 10% of the produce category, so bananas and their suppliers achieve plenty of attention.  Kiwifruit contributes at the low single digit percentage level, so the amount of time supermarket category managers allocate to kiwifruit suppliers is considerably less.  Unless of course, there is only one supplier from New Zealand to see and that supplier has innovative merchandise concepts and promotional support available as well as decent fruit.  We have seen what happened when the apple business deregulated.  We went from one apple marketer from New Zealand to ninety plus within one year.  International retailers were tearing their hair out. Supermarket operators like the “steady as she goes “approach.  “No surprises, thank you”, they say.  “What do mean, I have a queue of New Zealand kiwifruit growers who want to see me?” Not a pleasant prospect  for them.

Supermarket category managers  are not looking for more work.  They are not  really wanting us to drop our prices because they like things just the way they are. We will not get any thanks for upsetting their equilibrium and, if anything, they will actually get annoyed with scrapping novice kiwifruit sellers from New Zealand sitting outside their offices and demanding access. Guess who is going to loose out then?  New Zealand as a whole, because we will have just given the supermarkets the final justification they needed to switch their main focus to Chilean kiwifruit!

Thirdly, let’s just have a look at what we have got here.  We have an industry that opted for regulation after the free market model it started with had collapsed spectacularly.  Kiwifruit growers are part of the wider produce industry which has finally woken up to the fact that co-operative behaviour and co-opetition are the pathways to survival.  So what are we going to do?  Break something up that works really well because it no longer fits the principle – and then encourage it to band togther on a voluntary basis?  Get real, the country cannot afford experiments of this kind.

Lastly, anyone who has travelled through Northern Italy in the last twelve months would  have been shell shocked by the amount of devastation caused by PSA, the despair on the face of the growers – and the mess lying around in the abandoned orchards because  there is little or no co-ordination in terms of managing countermeasures and the new reality.  A stark contrast to New Zealand and its response.  A response mad possible through the robust structure of our kiwifruit industry!

No sooner had I calmed down and turned  a couple of pages in the NBR and I hit the next article of interest in this Unholy Trinity – Professor Jaqueline Rowarth’s column promoting the views of one of her Massey University colleagues on the role of supermarkets in the food chain.

 

 

 

 

 

 

 

All three articles and all three themes of great interest to me but the value they add individually to any reader is somewhat limited in my humble view.  I will therefore attempt to pull them together  and use the essence and learning from each situation to suggest a produce industry thought framework for future use.

The message in the Euro debt crisis article is pretty simple:  Know who you are, understand the value of your asset base and do not borrow money you know you cannot repay.  In other words, live within your means on the basis of having a jolly good handle on your economic reality.

Roger Kerr predictably blows the ‘monopoly is evil, free market is everything’ trumpet and, of course, he has a point – up to a point that is! Competition is good, competition keeps the mind sharp, competition drives innovation, innovation adds value – and isn’t that what we as a nation are desperately trying to achieve in our attempts to get ourselves out of the commodity trap and into the value add business.

Supermarkets cannot be ignored says Jaqueline Rowarth.  Farmers Markets are great little niche operators, but, hey , say Rowath and her colleague, supermarkets are THE channel to the consumer because that is what the consumer wants. Is it really that simple?

Short answer – no!  Supermarkets are in the volume business and a grower who operates at a certain scale needs supply chain partners who can cope with that scale. Assuming that the more the supermarket buys, the cheaper the produce has to become is a fallacy though.  There comes a point in the game – and that is exactly what it is, a game – where the supermarket has to pay more if it wants the produce or the produce will find a different way to reach the consumer.

And it is in that area of supply chain gamesmanship that I earn my living, so please do not expect me to drop my pants here and give you the recipe !  You know where to find me though.

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