We’ve focused a fair amount of attention on issues related to suppliers assessing their businesses and electing to “fire customers.”
We launched this series with a piece entitled, Just Say No: The New Dynamic Of Producer/Buyer Relations, which quoted the Fresh Produce Journal in London announcing that Del Monte had walked away from ASDA’s banana business:
Del Monte is re-evaluating its position in the UK after “walking away” from ASDA’s banana business.
UK md Peter Miller told FPJ: “We decided that it was no longer the right proposition for us to continue supplying ASDA with bananas.
“We walked away from the ASDA tender because we didn’t like the money, but we still have 80 per cent of their pineapple business, a significant and developing share of their melon business and a massive proportion of their fresh-cut fruit business.”
ASDA has extricated itself from the global supply deal its parent company Wal-Mart had on bananas with Del Monte, and is now sourcing from Fyffes, Chiquita and International Produce.
The same piece focused on Tanimura & Antle’s decision to not sell to processors. We followed up this piece with an article entitled, Tanimura & Antle Changes…A Sign Of The Times.
We also published an important letter from Ted Campbell, former Corporate Director of Produce for Supervalu, under the title Pundit’s Mailbag — ‘Little Tolerance For Dictatorial Buyers.’ In this piece, Ted explained what he saw as a reasonable procurement philosophy:
During my years at SUPERVALU and AWG, I spent many days training young buyers that their key responsibility was securing the “best” source for products rather than the apparently cheapest source. As you well know, it is critical to have consistent supply, superior quality, product safety, innovative items, and numerous other attributes — none of which happen fortuitously (they almost always cost more).
The second leap of faith in this training exercise was to develop their understanding that these premier suppliers deserved adequate return on investment and thus should receive a “fair premium” over general market pricing.
Finally to really make their heads spin, I always told them that a reasonable pricing premium returned dividends at retail because better stuff just simply sells better: more eye appealing, better eating quality/customer satisfaction, less shrink & labor, usually better margin, better repeat sales with positive customer referrals, etc. No one makes money until the product goes through the cash register, so I wanted items to fly off the shelves (and the financial advantages of rapid inventory turns are often overlooked).
Then John S. Cross, General Manager of Newell Potato Cooperative, sent in a letter that we published under the headline, Pundit’s Mailbag — Fear of Losing Market Share. The gist of his letter:
Too many producers in the potato industry have an extreme fear of losing market share, and unless their sales people don’t have product to sell, are afraid to raise prices to a profitable level.
It is interesting that John works in the potato industry because happenings in the potato industry are bringing this discussion right back to the UK, where it started in the controversy over Del Monte dropping Wal-Mart’s ASDA as a banana customer.
Earlier this month, a major potato supplier to ASDA also decided to say “No More” as is detailed in this article in The Scotsman:
Supermarket in firing line as potato bosses pull plug on £32m contract
A FAMILY-RUN potato business has fired the first shot for Scotland’s food growers by choosing to end a multi-million-pound contract supplying one of the UK’s largest supermarket chains.
The announcement by Taypack Potatoes in Perthshire yesterday that it had cut its £32 million-a-year contract with ASDA, Britain’s third-largest supermarket group, was met with surprise by insiders. The company, which started up in 1986, supplies ASDA with 80,000 tonnes of fresh-pack potatoes per year.
Taypack, one of four main potato suppliers in Scotland, is a significant player in the UK fresh potato market, controlling a 9 per cent share of the annual production of 1.5 million tonnes.
It is believed Taypack’s misgivings over the contract began some time ago but came to a head recently when ASDA, which paid the company around £180 per tonne, demanded more potatoes were supplied, forcing the growers to buy in potatoes at £230-300 a tonne.
Growers also pointed to two fuel rise prices over the past 12 months and a threefold increase in fertiliser, which has not been acknowledged by the supermarkets. George Taylor, chief executive of Taypack, which employs 220 full-time staff and a large number of seasonal workers, said: “The current contract expired on 1 May, however Taypack has presented a two-year proposal, based on the true cost of production, which will deliver sustainability and stability to all parties.
”This is with ASDA for consideration and our door remains open. We are in a strong financial position and will take time in the coming months to provide new customers with a competitive offer which safeguards the long-term sustainability of the entire potato supply chain.”
The move was unexpected given Britain’s £1 billion potato market is described as “cutthroat” and there is said to be overcapacity in the processing and packaging plants supplying supermarkets.
Last night the National Farmers Union (NFU) in Scotland said Taypack’s action could be the first indication growers felt more “protected” in speaking out following the Competition Commission’s announcement it was appointing an independent ombudsman with powers to protect farmers and suppliers from exploitation.
Anna Davies, communications and campaigns manager for NFU Scotland, said: “This could well be a sign of increasing confidence brought about by the recent Competition Commission announcement of an independent ombudsman.
”Traditionally the large retailers have been the ones wielding the power but now those further down the supply chain will be able to speak out without fear of reprisal and will be in a position to make the best decision for their business.”
In many ways, the Taypack Potatoes decision is more important than the Del Monte decision. Del Monte as a major international company, and the bananas are grown in distant countries and shipped. So if Del Monte and ASDA can’t make a deal, presumably Del Monte will just ship them to another country and sell them there.
But Taypack Potatoes was more than a vendor to ASDA. It has taken down its website for now but an older version of its website had described its “present” condition on its Company Profile this way:
Taypack is now a fresh potato packing business dedicated to supplying ASDA from its state of the art, purpose built facility situated on the A90 between Perth and Dundee. Supplying 100 stores through 3 of the distribution depots, Taypack supplies 40% of the ASDA fresh potato business.
With a turnover of £26m and an annual throughput of 135,000 tonnes Taypack is a progressive and innovative company which prides itself with being a leader in technological innovation and product development.
Taypack operates a full traceability system which allows coding of individual packs to identify the grower and field where the product was grown through to the finished pack on shelf.
Successful businesses require good people and Taypack has built up an excellent team of managers who are completely dedicated to the company and its future.
In other words, not only are these Scottish potatoes that for the most part have to be sold in the UK or they will not be sold but the packing facility was exclusively designed to serve ASDA. So strong was the tie that the company identified its purpose as being “dedicated to supplying ASDA.”
Americans look to the UK produce industry as having a unique ability to get things done. This ability derives from the close tie between supplier and retailer. This close tie makes vendors willing to invest to serve the retailer’s needs — as Taypack potatoes did in building this facility.
The presumption, though, has been that this loyalty was reciprocal, and so if Taypack invested to serve ASDA, so ASDA, as almost the sole customer, on some level was accepting responsibility for giving Taypack a chance to make a living.
Taypack’s walking away from the business may or may not mean much for the British potato sector. That depends on how many acres of potatoes are planted this coming season. If the land is diverted to biofuels or wheat, it will establish that growers have options, and that will change the dynamic between vendors and retailers.
Whatever happens with potatoes, however, the fact that ASDA seems likely to let Taypack walk away — that is to say that ASDA does not feel an obligation to work with Taypack to ensure they are profitable — might reduce the willingness of vendors to invest in servicing the British multiples, without the benefit of long term contracts.
It is also intriguing that this matter is playing out in the UK, where sustainability discussions have been ongoing for many years. As we have discussed, sustainability is more than environmentalism; it includes conducting oneself in a way that sustains the supply chain.
Companies don’t walk away from a division of Wal-Mart without feeling they have no options. That both Del Monte and Taypack felt the need to do so brings into question whether Wal-Mart CEO Lee Scott’s commitment to sustainability is real or whether it is a greenwash covering only those environmental activities where Wal-Mart thinks it can cut costs.
