Squeezed Middle Ground Is More Of An Issue For Retailers

Ian Craig, CEO of Fresca Group, was interviewed for a PRODUCE BUSINESS UK piece titled, Fresca calls for support to bolster squeezed produce middle ground, and in the piece he pointed out that although there was strong demand in many sectors such as upscale and convenience, sustaining the great middle market was becoming increasingly problematic.

Why? Consumer quality expectations are high, while the pressure on pricing is acute.

As the piece, by PRODUCE BUSINESS UK contributing editor Steve Maxwell, detailed:

“Price pressures are making it increasingly difficult for suppliers to maintain supply that meets the quality aspirations of the retail customer for the price available,” Craig says.

“Whilst this has always been the challenge, with food prices in the UK down by 3.4% over the last year and inflation currently running at 0%, this picture looks set to remain for the foreseeable future.”

Indeed it does… Indeed the phenomenon of the “shrinking middle” – in which what was once seen as the mainstream heart of the industry is under siege – is now global.

On the retail side, this columnist grew up in a family produce business, and when retailers began buying direct we opened a few supermarkets. At that point, the great competitive fear was that another, newer, larger supermarket would open across the street and crush us with one mighty blow. For a long time now, that has not been a big threat; in fact, back in 1993, we wrote a piece for PRODUCE BUSINESS UK’s sister publication in America titled Death by a Thousand Cuts that put it this way:

It is the exception that the major competitive threat is a new supermarket chain coming into town, anxious to take major market share. More typical is that supermarkets and their produce departments face a death by a thousand cuts — death not from one new chain seizing 40% of the market, but instead from a plethora of new formats, each one seizing a few percentages of the business.

So the wholesale clubs come into town and grab 4% of produce sales. A Whole Foods chain, emphasizing a “back to the earth” atmosphere, opens and takes 6%. Fast food restaurants open their drive-through windows at 7:00 a.m. so workers can pick up a salad for lunch on the way to work — another 1% of business is lost. A supermarket chain opens specializing in small stores with limited variety and low prices, taking 6% of the market with them.

Then we have gourmet stores, farmer’s markets, flea markets, U-Pick operations, supercenters, hypermarkets, home delivery services and more. What it all boils down to is that it is increasingly hard to compete if your goal remains to be the broad-based supermarket attractive to 95% of the people in the community. Instead, the trend is to the development of niche operations, each one dedicated not toward capturing the entire market but instead dedicated to doing a great job serving a specific consumer segment.

Fresca’s Ian Craig, himself, points to this phenomenon in the PRODUCE BUSINESS UK article explaining:

UK retailers say Craig, is experiencing growth in and placing a lot of focus on the convenience and online markets; both of which require changes to conventional working models. In fact, Craig says Fresca has been adapting its offer to identify products and formats that would be ideally suited to making the most of those opportunities.

“There are different ripening requirements and different systems for distribution to meet these needs too, so it has involved a fresh approach in many parts of our operations,” he explains.

The movement to specialization is happening on the production end as well. There was a time when USA apple producers could make a good living growing apples with the expectation that a big chunk of the crop would be sent to make apple juice. Today, top apple producers expect to grow everything for the highest returning use – the fresh market – and the apple juice will be shipped in from China or elsewhere.

Indeed society as a whole has been following this trend to specialization. People who grew up with only a few TV channels now have satellite and cable offers with highly specialized options running into the hundreds.

On the vendor side, this trend poses great challenges because vendors now have to have many specialized abilities to serve numerous industry segments. Read this exchange on the issue of the growth and potential of meal delivery services and realize how fragmented the market is becoming.

Of course, this is also a great opportunity for vendors. One reason The London Produce Show and Conference was such a smashing success last month, with attendance up over 50% over the previous year, is that vendors who have little interest in selling to the big four retailers – where they feel they will just be pounded on price and suffer too many rejections and clipped bills – are thrilled to sell to deep discounters, upscale chains, warehouse clubs, online services, the foodservice sector, wholesale markets and more because they feel that a specialised approach gives them a  chance to create long-term value that gets expressed in pricing and the handling of disputes.

The vulnerability of the middle market is actually much more of a challenge for retailers than for vendors. Vendors have to be smart and agile and learn how to turn competitive winds in their favor. That is exactly what Fresca’s Craig is referring to when he talks about certain investments:

“Each of our companies operates a full programme of new product development, and seeing new ideas through to the shelf is very rewarding,” explains Craig.

“We’ve invested heavily in variety development programs in all areas, but particularly in grapes and in stonefruit, with these long-term projects now showing plenty of commercial promise. We’ve taken a group-wide approach to help us make the best value of the investments.”

Much as companies including Sun World and Driscoll’s have established proprietary variety development divisions, this is a path to change the power structure around produce. Once the best product is available from limited sources and is quantity-controlled, those retailers who think the hammer is their ally when dealing with suppliers will quickly learn that investing in long-term sustainable vendor relationships is as important as investing in up-to-date store design.

Of course, as a rising tide really does lift all boats, we hope that the government and non-profit sectors will help lay the ground for a healthier population by encouraging more produce consumption.

Yet, in the end, no such efforts will revive a failing middle market. Consumers are just too likely to gravitate to specialized vendors who meet their specific needs at specific moments in their lives. That may be for a discount or may be for something extraordinary; for something focused on health or a big-volume package; it may be something delivered or something that can be picked up 24/7 – whatever it is, the retailers who meet these specialised needs will triumph and the vendors that can help them will triumph as well.