Will 2016 Be The Year Of Strategic Thinking?

As we move into the New Year, the challenge remains the same: How do we position ourselves and our organizations for success in 2016 and beyond? One answer is to understand more accurately the changes we see in our industry.

The boom is the hard discounters – but people who speak like this haven’t really been looking at the evolution of these stores. Go to America and look at an Aldi US outlet… you see a deep discount concept has existed in the UK a decade ago or more. In Ireland, the market share for so-called hard discounters is higher than in the UK, but their newest stores scream anything but traditional discount. Here is a picture Paul Gibson, a Sales Operations Executive at Lidl Northern Ireland, published on LinkedIn to promote the reopening, after renovation, of Lidl Bainbridge:

Mr. Gibson is rightly proud of the beautiful store, and whatever it screams to consumers hard discount is unlikely to be the message. Indeed the key to the success of such stores may well be their willingness to make their stores and products as attractive as possible. Mainstream chain retailers have responded to the discounters by trying to segment their private label offerings. The idea is to offer a competitively priced line to what discounters offer in order to capture consumers focused on price, while also marketing higher margin private label offerings that will boost profits.

The efforts have not been wildly successful. Partly, it is because mainstream retailers don’t like the lower margins the deep discount lines produce, so they tend to start out in all stores with a big unveiling and then gradually disappear because in the effort to boost margin stores don’t reorder the lines and headquarters don’t force distribution.

The bigger problem, though, is with the lines themselves. Mainstream retailers literally have experts working hard to make sure these discount lines are not very attractive, lest their allure leads consumers to downshift to a lower margin item. In other words, trying to segment the consumers, mainstream retailers want these products to look cheap and, ideally, they would like there to be a little shame when others – consumers or staff – see someone carrying these low margin lines in their basket.

In contrast, Aldi and Lidl want to make their products and stores as attractive to consumers as possible within the realm of affordability. So consumers who value economy wind up being left with two choices: Go to mainstream stores and buy what is obviously an unappealing range and even be noticed by others in the store as buying discount lines, or go to a place where you are buying the top line and where everyone is equal.

Is it really a surprise that the discounters who offer this alternative gain market share? For mainstream retailers looking for a challenge in 2016 – how about a resolution to eschew treating any customer as a second-class citizen?

With AmazonFresh likely getting ready to roll out in the UK, competitors may see another food delivery service such as Ocado emerge, but what if making money on fresh foods, or food at all, isn’t actually important to these companies – rather they just want to fill up space in trucks on a break-even basis so high margin general merchandise is sold on a self-owned delivery network that will deliver in hours?

Many years ago, this columnist was the “Coconut King” of America – and we never made a nickel on coconuts. But coconuts had the great advantage of being big and bulky, and filling up the trucks with coconuts sold just to carry their share of the freight made it possible for us to sell high margin Italian chestnuts, Greek figs, Belgian endive and salsify, and French Granny Smith apples all over America.

For retailers, developing a good strategy for dealing with a competitor who approaches the market in this way may be the challenge of 2016.

Growers have struggled for years with a constrained buyer base. Some have felt their futures depend on all-in affiliation with particular chains. Yet this may work to make a living, but it also limits the growth of the business because one can’t be married to everyone.

So top producers have chosen to reduce their risk – political and economic, weather and market – by diversifying their production and customer base. It wasn’t destiny that a company such as G’s in the UK would have growing operations in Spain, Poland, the Czech Republic and Senegal and a marketing operation in America. It is indicative of a company thinking strategically about ways to succeed in the world as it is, not as they might prefer it.

Which path to take – strict alignment with a favored customer or customers, or diversified production and marketing – is the challenge for producers in 2016.

For everyone – producers, retailers and those in between – the evolution of the business is pointing to a new golden ring on the carousel: Proprietary genetic material.

With Club apples and special varieties of table grapes and berries, we have just begun to experience the way superior genetic material can transform the industry. There is the Driscoll’s model, where it owns its production and marketing, and the Sun World model, where it licenses its varieties around the world.

Some varieties are better than others and some positively distinct, but tying superior genetics with branding is likely to upend the power relationships in the industry. Sun World has as deep a knowledge base in this area as any company in the industry, and when 2015 came to a close it announced the formation of a new entity, Sun World Innovations and the appointment of Sun World LLC’s Executive Vice President, David Marguleas – who has long run Sun World’s breeding and licensing efforts – to an additional role as President of the entity.

How to deal with water issues, labor issues and breeding all will be in the new entity’s bailiwick. Perhaps the sotto voce message is that 2016 is the year for strategic thinking about what kinds of fruits and vegetables the industry will produce and how it will be marketed – and the winners will be those who think smartest and hardest on this defining issue of the times.