Market Trends and
Retailers’ Strategies in
Fresh Produce
Cal – Med Consortium Workshop III
Mediterranean Products in a Global Market Place
Barcelona, 26-27 April 2007
Dr Marian Garcia
Kent Business School
University of Kent
Presentation Outline
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Growing global importance of supermarket
chains: globalisation  global sourcing
Retail change and competition
Developments in Supermarket Supply Chain
Management
Supermarket strategies
Implications for suppliers
Conclusions
Nine retailers belong to Global Fortune 100
Global Fortune 100
- Ranking and 2001 revenues in $bn Ranking
220
1
73
24
P. Morris
62
35
Carrefou
r
Ahold
60
38
46
54
55
50
Home Depot
Nestlé
56
50
Kroger
68
46
Unilever
72
44
83
41
Sears
89
40
Target
93
100
39
38
Wal-Mart
Metro
P&G
Albertson's
Retailers
Suppliers
Retailers: Increasing expansion worldwide
International presence of top 20 retailers
countries
82countries
82
countries
11countries
11
1992
1992
2002
2002
Share of largest retailers in European grocery markets, 2004
Four largest UK food retailers account for 75.6% of total grocery sales
UK Grocery Market Share
12 Weeks to 25 March, 2007
40
31.2%
30
25
20
16.9%
16.4%
15
11.1%
9.3%
10
3.9%
5
4.7%
3.7%
2.8%
-o
ps
In
de
pe
nd
en
ts
M
th
er
Co
ul
tip
le
s
fie
ld
So
m
tro
se
ai
W
M
or
ris
on
s
y's
bu
r
er
O
Source: TNS
Sa
in
s
As
da
0
Te
sc
o
% Market Share
35
Movements in operating margins and market shares
of the major grocery retailers, 2000/1 - 2004/5
source: IGD Grocery Retailing 2005.
How Retailers Compete
Challenges
Retailers are struggling to differentiate
their stores in the mind of the consumer
• Store is the battle ground for share of the wallet
• Grater emphasis on customer loyalty programmes
• Grater focus on fresh items management as a
differentiatior for supermarkets
Extreme competitive environment with
new entrants and formats
• Commodity nature of many product categories and many
available consumer choices
• Closer collaboration with suppliers to develop value creation
strategies
• Desire to reduce waste and complexity to allow improved,
more flexible and faster decisions at a lower cost
Resulting Trend
Increased focus on
customer demand to
drive business
decisions
- Price, range and service
- Diversification into non-food
and services
-Shift to premium products
- Opening high-street
Convenience stores
Reducing costs in
the supply chain to
free up cash flow to
allow execution of
differentiating
activities
Developments in Supermarket Supply
Chain Management
1990s: paradigm shift in the way firms sought to
compete
Sustainable competitive advantage could not be achieve by
firm in isolation
 But through the engineering and management of efficient
and effective supply chains, in collaboration with their
customers and suppliers
 Business success will be derived from companies managing
and enhancing the total performance of the supply chain, for
the purpose of delivering improved value to customers.
 Companies are seeking to construct ever more efficient and
responsive supply chains as the nature of competition
moves from firm against firm to supply chain against
supply chain
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Supermarket Strategies
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Exclusive products/service replacing location as the USP
Strategic emphasis on ‘own label’ requires strategic
approach to supply chain relationships for ‘destination
categories’ (fresh produce, meat, ready-meals)
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risk management (food safety)

crisis management (traceability)
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establish/restore consumer confidence (assurance schemes):
Growing awareness of & concern about food production (safety,
welfare and environment) and food composition (diet and health)
Diminishing confidence in government, scientists, food
processors, farmers and…retailers?

Supermarkets are effectively integrating backwards
Supply chain collaboration is now the preferred
business model for retail food chains
Paradox of Power
Supermarkets demanding:
consistent high quality (and systems to assure it)
•
diminishing role for spot (wholesale) markets
problems with price determination and discovery?
behaviour-based contracts replacing outcome-based contracts
 Environmental uncertainty versus task programmability
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competitive prices
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Premiums must be earned (market research and innovation)
large volumes from fewer (‘preferred’) suppliers
(category captains)
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Reduce transaction costs
‘powerful’ buyers increasingly dependent upon fewer,
larger, more sophisticated and dedicated suppliers
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Investment in specific assets = opportunity not threat
Impact on Fresh Produce Suppliers
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The supply of fresh produce is becoming increasingly
competitive.
In a market where there are plentiful suppliers, buyers
can afford to develop and impose effectively more
stringent requirements.
‘The Assured Produce Scheme provides the railway track
on which UK retailers run their own trains’
APS provides benchmark standards to which some
retailers add their own additional requirements in
order to differentiate their products from the
competition
Suppliers of fresh produce are less able to differentiate
their products at the consumer level
 They
are in a weak bargaining position as price
differentiation is almost the only available strategy.
Impact on Fresh Produce Suppliers
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Despite increasing rationalisation of the supply base, retailers
are still able to switch volumes between suppliers of fresh
produce.
As a result, suppliers of fresh produce are often forced to
accept low prices in order to get volume growth, which does
little to improve their immediate and long-term financial
performance.
In response to consumer trends and marketing demands,
innovative growers of fresh produce have increased their
cooperation and involvement with buyers and other members
of the supply chain to ensure their produce meet consumer
expectations.
Closer relationships between the various members in the
supply chain, ensure information is shared and can be used
to improve the competitive position of all members in that
supply chain.
Conclusions
• Competition between firms is being replaced by
competition between supply chains
• Firms seek sustainable competitive advantage
– Reduce costs (operational and transactional) and break
out of the commodity trap
• Supply base rationalisation (paradox of power)
• Process integration (technology enabled)
• Innovation (all aspects of the business: products, people, processes)
– Corporate Social Responsibility
• Triple bottom line (environment, social, ethical performance)
Conclusions
• Fundamental change in trading relationships:
– declining emphasis on narrow/short term performance
measures (eg price of raw materials, production lead time,
market share)
– increased emphasis on broad/strategic performance measures
(eg total cost of acquisition, total cycle time, market growth)
– declining importance of spot markets and spot trade (distinct
role for web-based trading platforms?)
• Fundamental change in the structure and culture of
business organisations
– from constrained (hierarchical) to ‘empowered’ (de-centralised)
– from reactive to pro-active
– from ‘learning organisation’ to ‘learning chain’ (with IT providing
the essential lubricant)
Thank you