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Pundit’s Mailbag — What IFCO Was Told About Wal-Mart’s RPC Decision… And What Was Not Said

Jim Prevor’s Perishable Pundit, September 22, 2011

A prominent industry consultant had asked us to weigh in on the motivations behind Wal-Mart’s move away from RPCs, particularly as this move seemed inimical to proclamations Wal-Mart had made regarding sustainability. We answered in a piece titled, Pundit’s Mailbag — Wal-Mart’s RPC Decision Is Part Of Its Bargain-Hunting Produce Procurement Strategy, and that piece brought several letters including these:

Great article. It made me wish that everyone could have the advantage I had: The opportunity to take Max Brunk's research course.

First thing Max taught is people give one answer, and reality is somewhat different. Max knew marketing, and while new forms of research have developed over the years, the basics remain the same. Max was tough to work under but he was at the peak of his profession.

—Dave Diver
Formerly Vice President of Produce at Hannaford

Author of Retail Perspective monthly column
at PRODUCE BUSINESS



I wanted to add a few comments on your recent response titled: “Pundit’s Mailbag — Wal-Mart’s RPC Decision Is Part Of Its Bargain-Hunting Produce Procurement Strategy”. IFCO has worked as a partner with Wal-Mart for many years, and certainly Wal-Mart’s change in procurement structure has been an adjustment for all of its vendors and business partners like IFCO. Although it’s understandable, the recent events and press this summer have been exaggerated or slightly taken out of context by many in the produce community.

Wal-Mart, like many retailers, is seeking various ways to drive sales and reduce costs. The big difference is for many years both of those ingredients for success repeated themselves rather easily year after year since Supercenters emerged 20 or so years ago.

The display-ready carton (DRC) initiative emerged this summer when Wal-Mart especially yearned for sales increases specifically in the orchard fruit categories. Some of the buyers at Wal-Mart want to test consumer messaging and see if direct messaging to the consumer can help drive sales for them. While the communication in the form of different memos and meetings from various people has somewhat confused the produce vendor community, Wal-Mart did clarify in August they wanted to start very slowly to determine if a substantial change is warranted. Moreover, IFCO is also working with Wal-Mart on consumer messaging directly on the RPC as well as other marketing agents which may drive sales.

The DRC is only being tested later this month with one commodity from only one of their many suppliers in a limited market.The upshot of the discussion is Wal-Mart is testing and analyzing all of these options before changing the entire orchard fruit category to any particular packaging configuration. Through the collaboration with Wal-Mart’s suppliers, Wal-Mart realizes small changes in the supply chain create significant implications to the growers, the distribution centers and the stores.

It’s also important to note all of the packaging testing is focused on orchard fruits. When Global Food Sourcing (GFS) first started at Wal-Mart, there was a lot of uncertainty about many commodities and packaging. However, Wal-Mart has continued to expand RPC usage in most commodities. Furthermore, Wal-Mart also is working with IFCO on collaborative new products like the new banana RPC, which will be tested at Wal-Mart later this month.

Overall, it’s quite understandable for any news or gossip related to Wal-Mart to escalate. Just about every retailer with whom we work has asked “What is really happening at Wal-Mart?” The RPC industry and IFCO, in particular, have continued to grow at multi-double-digit rates for years.

Major retailers like Kroger, Safeway and Loblaw continue to expand their RPC usage, while many regional retailers from coast to coast in North America also have started new RPC programs in the past few years. As long as retailers want better quality and lower supply chain costs, both of which may be obtained through an RPC program, RPCs will continue to grow at Wal-Mart and retailers across the continent.

—Andy Hamilton
Vice President - Sales East 
IFCO
Atlanta, Georgia

We appreciate both of these letters, and Andy Hamilton has clearly laid out the official story. We have no reason to think that it is not the story that he has been told by Wal-Mart. As far as it goes, it is almost surely an accurate explanation. However, as with many things there is a back story.

Bruce Peterson — then just starting the roll-out of Wal-Mart’s produce program — visited the United Kingdom in the early 1990’s, prior to Wal-Mart’s acquisition of ASDA. Bruce observed that RPCs were utilized by all the major UK retailers.

His interest was not so much the RPC itself, but the entire process by which they were deployed.

Basically Bruce was trying to think through four critical questions:

1. Were standardized display-ready boxes desirable?

2. If so, what should the standards be for display boxes?

3. What material should the boxes be composed of?

4. If plastic, could or should Wal-Mart’s US stores have a system-wide network of returnable/reusable assets?

Bruce had already been involved with CHEP in rental pallets, and CHEP was looking to move into this area as well.

The initial thinking as to why it would be a valuable system to use RPCs in a returnable/reusable system evolved over time. Initially, Bruce focused on the idea that Wal-Mart could realize labor and execution benefits through the use of RPCs.

Rather quickly, though, it become apparent that quality on display improved and shrink was reduced dramatically.

Ultimately, the whole concept of a "smart box" surfaced. Wayne McKnight and Michael McCartney played instrumental roles in that development and in advancing Bruce’s thoughts as to the potential for RPCs and an associated system.

It is a little known fact that it was through this initial work that the whole era of RFID emerged at Wal-Mart. Few realize that it was the produce division's journey into RPCs that brought Wal-Mart to RFID!

One only has to recount this little story to realize that it is implausible to think that a chain focused on such deep and long-term benefits such as labor, execution, quality, reduced shrink and, later, sustainability, would suddenly abandon such concerns simply because some executive wants to “message” to consumers more effectively about stone fruit, apples and citrus.

Obviously this type of messaging about orchard fruit is a relatively unimportant thing and, surely, the mighty Wal-Mart could figure out any number of ways to communicate with consumers besides altering its whole system of produce distribution.

We would submit that the key insight in understanding Wal-Mart’s willingness to change in this area has little to do with a sudden need for boxes to “message” on and a lot to do with a desire to be able to standardize procurement on the most common packaging so that Wal-Mart can more easily buy from the cheapest bidder.

We realize that Wal-Mart never said that, but as Dave Diver reminds us in talking about Max Brunk’s research class, when companies authorize their executives to speak, they do not always feel compelled to have them tell the whole story. Indeed the executives asked to speak often are not told the whole story themselves.

Max retired as Professor of Marketing at Cornell’s Department of Ag Economics in 1983. After his retirement, he wrote a column, called Agricultural Marketing, for our first issue of PRODUCE BUSINESS in 1985 and continued to write for many years. After Max “retired” from PRODUCE BUSINESS, his star pupil, Dave Diver, took over Max’s space.

There are a lot of people and publications to repeat what the press release said. Our job here at the Pundit is a bit more complex… to find the significance latent in actions and events. In this case, that is to say that we have a chain that today is consumed with getting a low F.O.B. It used to be a chain consumed with maximizing sales and profits by offering consumers a deal, while evaluating the total supply chain costs including impact on quality, impact on out-of-stocks, etc.

It is only a shift in those concerns that adequately explains the direction in which Wal-Mart has decided to move.

Many thanks to both Dave Diver and Andy Hamilton for their important letters.

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