So the financial world is filled with titillating talk that Ahold and Delhaize may merge. There have been talks in the past and they failed, so perhaps, nothing will happen. From a financial point of view, we could see doing a merger and then immediately selling off the American division or doing a public offering. Based on different valuations in different places, it might be some financial machination that would produce a profit.
But, from a retail and vendor perspective – really, what is the point?
The chains barely overlap, so probably not too many divestments would be required — perhaps a few stores in Belgium and a tiny number in America.
Doubtless they will project synergies, but whatever savings are realized through combining some back office and top management functions will probably be lost by having a more distant management team. We wrote all these pieces just about the difficulties of trying to merge buying responsibilities between Hannaford and Food Lion:
Though Stacked With Talent, Can A Consolidated Delhaize With Diverse Banners Meet Its Overall Strategic Goals?
Delhaize Advises Vendors Of Plan To Consolidate Procurement: Is This A Win Or A Loss For Delhaize…And For The Broader Industry?
Amidst Procurement Angst From Wal-Mart And Delhaize, Kroger Makes Changes More Transparent To Vendors
Then Wall Street analysts, who have never worked in the industry a day in their lives, will explain that because the combined chain is bigger, they will be able to buy less expensively.
This is mostly a chimera.
First, take produce… to have any hope of achieving this, there has to be a very sophisticated organization. When we interviewed Gé Happe, European Sourcing Director at Ahold in Pundit sister publication PRODUCE BUSINESS, he explained that the European and American divisions of the company did not have a unified procurement system:
Does having a large American division help you in any way? Does Ahold’s American division ever procure for you in the U.S., or do you always procure directly?
Second, once one reaches a certain size, having to buy more is not an advantage; it is a disadvantage. Think logically. How is it possible for Wal-Mart, Costco, Kroger, Safeway/Albertsons, Sysco and US Foods to all buy “under the market”? They ARE the market!
And when supplies are tight, loyalty plays out in surprising ways. Imagine there is weather and supplies have to be cut across the board by 50%. So all buyers will be screaming. But you know what happens? The intelligent vendor cuts Wal-Mart by 51% and then completely fulfills the orders for Dave Corsi, Vice President of Produce and Floral at Wegmans. Why? Wal-Mart won’t be any more unhappy than they would have been with a 50% cut, and Dave Corsi is the vendor’s new friend for life.
This whole proposal may be a way to make a quick killing, but it doesn’t provide any likely pathway for growth.
Last year The London Produce Show And Conference was fortunate to launch its Global University Interchange Program with Cornell University. This is a program, modeled after one we developed for The New York Produce Show and Conference in which faculty members from leading research institutions share their cutting-edge research with the industry through a series of presentations, while students gain an appreciation for the scope of opportunities available in the produce industry and gain a high level networking opportunity.
Cornell University is a charter member of the programs in both New York and London. At the inaugural edition of The London Produce Show and Conference, we heard this presentation:
At The London Produce Show And Conference: ‘ROOM AT THE TOP? — WHAT U.K. RETAILERS CAN LEARN FROM U.S. NATURAL/GOURMET RETAILING’ — Cornell University’s Rod Hawkes Points Out That ‘Upscale’ Has Changed And That The American Experience Points To The Possibility Of Big Changes Ahead For UK Retailing
This year at the 2nd edition of the annual event, we are expanding our cooperation with Cornell and will have two separate presentations by two well respected faculty members. We already presented a sneak preview of one presentation:
Will Reducing Food Waste Be Sufficient Reason To Embrace GMO Produce? Cornell Professor Brad Rickard To Guide A Controversial Session At The London Produce Show And Conference
Now we are honored to have Miguel Gómez join the faculty in London. He has been a superstar in New York, informing, educating and beguiling industry members with pieces such as these:
A New Hypothesis On Local: To Boost Sales, Sell It Through Supermarkets … Cornell’s Miguel Gomez Previews His Upcoming Talk At The New York Produce Show And Conference
Cornell Professors To Present At The New York Produce Show And Conference: New Ways of Thinking About Local: Can The East Coast Develop A Broccoli Industry?
Cornell Professor Miguel Gómez To Speak At New York Produce Show And Conference On Fruit & Vegetable Dispute Resolution Corporation
Professor Miguel Gómez Returns To The New York Produce Show And Conference To Unveil A New Study That Points Out A Path For Getting More Produce Into Hospitals
We asked Pundit Investigator and Special Projects Editor Mira Slott to find out what Professor Gómez has in store for us in London:
Miguel I. Gómez
Charles H. Dyson School of
Applied Economics and Management
Ithaca, New York
Q: Your annual presentations at the New York Produce Show & Conference, as well as the adjacent Global Trade Symposium, garner wide-spread praise. What is in store for London Produce Show attendees?
Q: Playing to consumer interest in local produce, U.S. retailers are building direct distribution agreements with local farmers. Some of these relationships go back generations. In certain instances, the contracts are exclusive, and retailers work with the growers to develop particular crops and specifications. Isn’t such an arrangement a much more profitable and advantageous route for the farmer?
Q: What do your case studies reveal on this front?
Q: This is related to the research you revealed at the New York Show last December…
Q: It seems ironic that many hospitals and their cafeterias, in particular, have reputations for carrying unhealthy food options, rather than dishes overflowing with fresh fruits and vegetables. Is it logistics, economics…?
Q: This is a sneak preview. We don’t want to give everything away!
Q: For perspective, though, farmer’s markets only represent a tiny fraction of the produce industry…
Q: Just to clarify, when you reference direct channels, you’re just speaking about farmer’s markets, farmer’s selling direct to consumers.
Q: Is this from a study you conducted?
Q: How are consumers defining local? Do you think consumers care whether it’s local from a farmer in their community, or are they more interested in the grower’s story in Latin America?
Q: Consumers say all that, but don’t most shoppers go into the supermarket and buy what looks the freshest at the best value, or what’s the most convenient…? We write about these programs where consumers can scan a QR code on an item and see a video of the farmer telling his story, or go to a website to see personal anecdotes about the family farm’s sustainability measures. How many consumers are actually investing the time to explore that? Is it making a difference in what they are buying? And while many of the stories are touching, there is not a lot of scientific measuring or perspective on the impacts…
Q: Can you elaborate? How do you get that message across?
Q: What did you learn regarding grower profits when going through intermediaries, especially in an industry where margins are squeezed?
Q: Can you extrapolate this case study to other commodities and geographies? What can the global audience in London glean?
Q: You also can connect with consumers on the locally grown aspect, and reduced carbon footprint.
Q: What about the seasonality and growing conditions? Is there a wide window for production on the East Coast?
Q: What are the biggest obstacles in building an East Coast broccoli market? How complex is the process? How do you get all the players in the supply chain on board?
Q: It’s a big investment… Are growers convinced of the product quality, yields, etc.? Where are you now in the piloting process?
Q: That’s a critical element. You could get the whole system in place, and then there’s a marketing problem…
Q: Aren’t these kinds of systems also being developed in other commodities internationally?
Q: What do you hope attendees will take away from your presentation?
Statistics that show direct marketing — farm to consumer — is more profitable than working through wholesalers and retailers mostly fail to account for the value of labor. Yes, if the farmer’s mother is free to stand all day at a stall selling to consumers, the farm will make a lot of money. But if you consider that Mom could have gotten a job or done other useful work, the economics rarely work out.
It is these uncounted costs that upend many calculations. The American East Coast broccoli project isn’t as successful as the numbers would suggest. Why? Well, first of all, most of the broccoli in a city such as New York is already Mexican or from Maine, not California. But, here is a little secret: Lots of farmers in California produce broccoli, and have for years, but they can’t remember the last time they made a profit on it. Why would they do this? It is a perfect crop to use for rotation purposes.
So when they price out the cost of growing in South Carolina or in California and it seems as if South Carolina is competitive, it may not be so.
So what seems like a low cost distribution system — farmer direct to consumer — often is not when you factor in labor, inefficient transportation, etc. So the future of local growers has to be through distribution centers.
In the big battle that has been going on in London over the redevelopment of the New Covent Garden Market, this is what has often been lost.
Markets serve as the hinge of two things that people really want to succeed. On the one hand, they sustain open space, smaller farms and local producers. These are growers who need the markets because, whereas retailers buy the size, grades and varieties they want, wholesalers help the grower sell what he needs to sell.
And, of course, this is possible because of the other end of the hinge — wholesalers make possible cities filled with idiosyncratic and interesting independent retailers and restaurants. They allow our urban spaces to not fall into utter conformity, whereby every place one goes, one sees the same stores and restaurants.
All over the world, one gets the sense that governments, focused on the rich market value of urban property, have forgotten the vital role of the markets on both rural and urban life and, instead, focus on the short-term profitability of selling off development rights.
But long after that money is spent, we will live in cities poorer because the nearby green space is not preserved and the diverse city fades into homogeneity.
Come to the London Produce Show and Conference and participate in this important discussion.
You can learn more about the London Produce Show and Conference right here.
This is a small brochure we created that showcased the event from last year.
Please register at this link.
And, remember, we have a great “better-half” program; you can learn about it here.
You get the most out of the event by staying onsite at the headquarters hotel. It maximizes networking and thus the value you take out of participating. Get discounted rooms at the headquarters hotel right here.
We still have a few booths left if you want to participate as an exhibitor, so please let us know here.
And sponsorship opportunities allow you to position your company as a leader; find out about opportunities right here.
Come join Professor Miguel Gómez from Cornell University for this talk, and meet the students who have come so far to learn so very much.