United’s Foodservice Focus
Opens Door To New Approach
Jim Prevor’s Perishable Pundit, May 2, 2008
Now that United has settled down for an extended stay in Las Vegas, the association is emphasizing the enormous local foodservice buying base. In fact, its interest in including more prepared foods and similar products in the show next year is to a large extent built on the fact that the buyer for most foodservice operators, including large Vegas hotels, is likely to buy a variety of food and beverage products.
Yet foodservice, though an important buying segment, is also a somewhat problematic one for the supplier base in produce.
One might think that foodservice operators, as they are buying an ingredient which will typically amount to only a small portion of the total price the consumer will pay, might be willing to pay top dollar for quality. Yet that is not how it typically works out.
Certainly some white tablecloth restaurants will pay premiums to get precisely what they want — delicious, ripe for tonight, organic, locally grown, etc.
It seems as if almost all high volume chains, however, are very price-oriented.
It is understandable why this would be so. With an inflexible menu price, every penny a foodservice operator pays for an ingredient is a penny out of the operator’s profit.
In contrast, retail prices are much more flexible so price increases are more easily passed on to consumers. In fact, as many chains work to maintain set margins, higher prices often rebound as higher profits for retailers.
We’ve discussed recently both here and here, the issues regarding growers getting a profitable price for their production.
It is not an easy thing. Produce is perishable; farmers have to sell their crop. Issues regarding yield cloud what is actually profitable and what is not. Few growers can just say no to unprofitable business.
Although every day the newspaper brings reports of rising food prices, our perception is that returns to producers in fresh produce are not keeping up with the rising cost of inputs.
The foodservice operator may be naturally focused on price. Yet the branded foodservice operator, such as McDonald’s, is in direct contact with the consumer and is also particularly sensitive to its public image.
Issues related to sustainability, which we have discussed in many places including here, here, here and here, include at their essence the sustainability of the supply chain, and that is not sustainable if the grower goes broke.
If United is going to attempt to focus more on foodservice, a useful approach would be to tie together the operator’s desire to be — and to be seen as being — sustainable, with the need to raise returns for producers. That would make “Sin City” a sustainable setting for a long run of United Fresh conventions.