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Though Stacked With Talent, Can A Consolidated Delhaize With Diverse Banners Meet Its Overall Strategic Goals?

Jim Prevor’s Perishable Pundit, February 28, 2011

Our piece — Delhaize Advises Vendors Of Plan To Consolidate Procurement: Is This A Win Or A Loss For Delhaize…And For The Broader Industry? — brought many comments. Dave Diver, who had been Vice President of Produce at Hannaford and in more recent times is a Contributing Editor to Pundit sister publication, PRODUCE BUSINESS, has a lot of faith in the team at Delhaize:

The Delhaize transition should be a challenging and exciting time for the company associates and produce industry. The culture at Hannaford has always been one of staying on the cutting edge after thorough investigation, which from what I have heard during the last year is the process followed in this instance. The organization is blessed with hard working smart people who get better every year.

Change brings uncertainty, but we have seen it in all parts of the produce industry for as long as I can remember. The biggest challenge for those outside is having to cope with changes not of their own making.

May everyone move forward to a more productive result.

— David Diver
Formerly Vice President of Produce
Hannaford Brothers

Another former retailer also has faith in the team at Delhaize, but his experience indicates that, in the long run, these things tend to develop a momentum of their own:

I just finished reading your article on Delhaize and its plan regarding the Consolidation of Procurement. As always you are right on mark, and thank you for the honorable mention. I agree with you that Delhaize has some very talented produce people and will be lead by the talented and well respected Jim Corby. I know Steve Williams and Will Wedge, and they are also high quality produce people. Jim Corby and the Delhaize executive team have the ability to look at how the big guys have executed their buying consolidation and hopefully will not make any of the same mistakes.

No doubt there will be pain for the people and at least in the short term, the consumer may suffer a bit. You hit on all of the points that contradict the Senior Management’s motivations to centralize as the cost-saving and ability to buy better and cheaper that they project may not be realized. When most all of the big chains centralized, sooner or later they stripped the operating divisions of any buying responsibility. I have always believed that you can do a hybrid centralization with at least one buyer left in the divisions. This one buyer can buy those items that are a pain for a centralized buying operation; this buyer could handle the shorts, the local deals, etc.

All of the centralized chains say that they have people in the operating divisions to be the eyes and ears of headquarters both as to the quality of produce arriving and in terms of staying close to the consumer. They say that they have a big voice back at corporate and what they want they will get. This may be true at the beginning, but as time goes by and new people take over those merchandising positions, they will have little interest or the skill sets necessary to be the “gate keepers” for quality and the information flow to corporate. Simply, they will have their hands full trying to do their jobs of selling whatever the centralized buyers buy. Don’t get me wrong, these buyers usually do a good job but they almost never get to see the product or what the division is competing against locally.

— Dick Spezzano
Formerly Vice President of Produce
Von’s
President
Spezzano Consulting Service, Inc.
Monrovia, California

We appreciate that both Dave and Dick took the time to share their perceptions with the trade. It seems to us that in the short term the impact of consolidation is substantially muted by the seeding throughout the new organization of people who worked at Hannaford.

Long term, though — and Dick Spezzano alludes to this in his letter — the make-up of the organization creates its own imperatives. If one was a new junior buyer who joins the organization after this consolidation is complete, it is unlikely that you would see the path to a maximally successful career as being the protector of Hannaford’s or Bloom’s particular niche in the market.

The very talented management team at Delhaize may make it all work. But there is, to us, a kind of logical flaw in the new organization.

The problem is not consolidation, per se. If Delhaize owned, say, Hannaford and Wegmans, both chains that try to buy the best stuff, consolidation might pose few problems.

The issue is consolidating Hannaford and Food Lion, which buy different product. Obviously some things can be bought well on a consolidated basis and, in fact, Delhaize probably did buy things such as bananas on a company-wide basis before this initiative. But that is because there is only really one product and less than a half dozen companies to speak with.

The issue here, for Dehaize, is whether the company is giving its own people the tools they need to succeed.

Will Wedge, for example, has been given a new title and new job — Hannaford/Bloom Banner Merchandising — Fresh. This is clever and appropriate. It indicates a recognition that Hannaford and Bloom are significantly different than many of the other Delhaize operations.

The issue, of course, is this: If you know that these divisions are different and are going to market them as different, shouldn’t you back up that “difference” and that “marketing” with differential procurement? In other words, logically, shouldn’t Will have a buying team to execute the promise that is going to be made to the consumer?

Dick Spezzano’s letter suggests a divisional buyer to handle shorts and local buying. Not a bad idea. But we would stand with the idea that no matter where the buyer is located, the crucial thing is that the buyer be fully vested in the banner and the consumer it serves.

Hannaford buyers, of course, care about price but, by and large, they really try to get the best product in the stores. Food Lion has other priorities. How do you mesh this and make consolidated buying work?

Right now, Hannaford is very open to buying both direct and from the terminal markets in Boston. It is highly likely that even if a wholesaler has a superior product available, the consolidated buying team will be more interested in setting up its own programs direct with shippers.

When one thinks about Delhaize, the bigger issue is whether this plan actually is sufficient to meet the need or achieve the goals.

If one were a fly on the wall in Belgium, one of the concerns has to be that a chain such as Hannaford has been relatively isolated from much competition from Wal-Mart. Delhaize has an obligation to its shareholders to think about how it can thrive if Wal-Mart, as it eventually will, opens more stores that compete with Hannaford.

The history of consolidation in supermarkets over the past 20 years is, to no small extent, a history of retailers thinking about how to compete with Wal-Mart and deciding that the key was to reduce procurement costs.

In our last piece, we dealt with a lot of reasons why such a reduction in procurement costs might not occur, but even if it does, isn’t that too little, too late to deal with Wal-Mart?

How much could additional consolidation of procurement actually save a chain such as Hannaford? Two percent seems like a very high number if one is not going to sacrifice quality. But even if it was 5% — how is saving 5% on produce procurement going to position Hannaford to defeat Wal-Mart in its market if the Bentonville behemoth starts rolling out supercenters in Hannaford’s market area? The answer is that it is not.

In fact, the opposite is true. The best approach would be for Hannaford to accentuate its local roots, to seek to buy brands and from growers that are too small for Wal-Mart, to monopolize the local produce suppliers, to handle better stuff in bigger variety than Wal-Mart, to let the local wholesale markets know that if they have something exceptional or an exceptional value, they have a customer.

So the issue is whether this consolidation really serves the strategic goals, properly understood, of Delhaize. This is a very different question from whether the particular individuals employed right now can successfully execute the plan.

We thank both Dave Diver and Dick Spezzano for helping us elucidate these matters.

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