THE CASE OF THE VANISHING MERCHANT
Bruce T. Peterson Jr.
President
Peterson Insights, Inc.
Temporary London Address
221 B Baker St- London
A Mystery Has Been Taking Place Right Before The Produce Industry’s Eyes!
• While not quite out of the pages of Sir Arthur Conan Doyle, there is a phenomenon that bears some discussion.
• What we have historically referred to as a “produce merchant” seems to be vanishing. ( or at least evolving)
• This phenomenon is having a significant impact on how produce is procured and presented to the consumer.
• Having an objective discussion about this can cause emotions to stir up! • And while perhaps not “ elementary” there are some clues that can give us insights
into both what is happening, and how to deal with it.
The “Clues, My Dear Watson”!
• A historic perspective on traditional buyer-seller relationships.
• The grocery business move to publically held companies.
• The impact of public affairs on decision making.
• The influence of “global retailers”.
• How new individuals are entering the produce industry.
• The emergence of the “marketer”.
• What can we deduce?
• How can we respond?
• Questions?
The Historic Buyer-Seller Relationship
• Both buyer and seller had background in the business. The seller was raised in the business. The buyer often came from operations. May have started in stores as a high school job.
• The size of responsibility went hand in hand with experience with the items.
• Experience came from time and mentorship. Significant time spent in fields, terminal markets, warehouses, back rooms and coolers in stores.
• Relationships could run long and deep. Your “word” meant everything!
• Intuition played as big a role as analysis. Buying came from the “gut”. There was significant risk taking on both sides.
• Buyers made quantity, quality, pricing, and merchandising decisions. Stayed in category a long time.
• Male dominated business. Oft times, long hours. Started early, ended late.
• Stayed in the business a long time, sometimes entire careers. Buyers were MERCHANTS!
What IS A “ MERCHANT”
• Merchandising- Definition :
• “ The activity of promoting the sales of good at retail. Activities may include display techniques, free samples, on-the-spot demonstrations, pricing, shelf talkers, special offers, and point of sale methods”
• The plot thickens my dear Watson! We’ll come back to this!!
Evidence Trail Left By A Merchant
• Focus on ITEMS!
• Pricing done to move merchandise.
• Seasonally right modular and promotions.
• Risk taking.
• Product knowledge. Supplier knowledge.
• Collaborative business planning.
• They are “ agents for the customer”.
The Move To Publically Held Companies
• Historically, grocery retailing has been a regional, privately held business.
• In the US, almost 70% of the retail food dollar is controlled by 4 companies. ( Walmart, Kroger, Costco, Safeway/Albertson’s )
• From a market concentration perspective, it is looking more like the U.K.
• Only 4 significant privately held companies left -HEB, Meijer, Publix, Wegman’s.
• The key here is not that more “power” is held by fewer retailers, but that those retailers are all PUBLICALLY HELD!
• Decisions are made differently in publically held companies vs. privately held companies.
• It’s all about the stock price!
• Now, the plot gets really interesting my dear Watson!
How US Retail Has Consolidated
• Kroger – Fred Meyer, Food 4 Less, QFC, Kings, Ralphs, Smiths, Kind Soopers, Bakers, Dillon's, Fry’s, Gerbe's, Harris Teeter
• Safeway* – Randall's, Tom Thumb, Dominick's, Genuradi’s, Von’s
• Albertson’s* – Acme, Jewell-Osco, Lucky’s Shaw’s, Star Markets
• (* Safeway and Albertson’s merged in 2014)
• Delhaize** – Food Lion, Hannaford
• (** Delhaize and Ahold have confirmed merger discussions)
• SUPERVALU – Cub Foods, Save-A-Lot
• Many of the top retailers have international operations
The Impact Of Public Affairs On Decision Making
• While financial performance still is the driving factor is stock price, corporate reputation ( image) is playing a significant role.
• Sustainability, fair trade, GMO’s, organic, buying local, grower direct, global sourcing, diversity are all topics that retailers are promoting with consumers and touting with shareholders.
• While most recent surveys show this as “top of mind issues” with consumers, the greater impact is with shareholders!
• Denegation of a company’s reputation can have significant impact on share price.
• What is interesting is how little impact these issues on changing consumer behavior.
• They have almost become like the word “fresh”. Where is the competitive differentiation?
The Influence Of Global Retailers
• Most significant food retailers have expanded operations in countries other than their own.
• Walmart, Tesco, Ahold, Sainsbury, Aldi, Carrefour, Costco, Delhaize, and others all have global experiences.
• The impact is being felt in assortments ( most notably private label), consumer preferences, and sourcing.
• Biggest impact being seen in senior management and how home office management is being selected.
• Keep this in mind as the plot develops!
The Emergence Of The Marketer
• Publically held, globally influenced companies, are evolving what today’s produce buyer performance looks like.
• Analytics are the basic for buyer decisions. Intuition and relationships have no influence on decision making because there is limited, or no experience to draw on.
• Buyers do not stay in categories long enough to gain valuable insights to the many nuances of the produce business.
• The emergence of the produce “marketer” is displacing the produce “merchant”.
What Is A “Marketer’?
• Marketer- Definition:
• “ A person whose duties include the identification of the goods and services , as well as the marketing of goods and services on behalf of a company. See also ADVERTISING”
• Advertising-Definition
• “ The activity or profession of producing information for promoting the sale of commercial products or services”
The Entry Level Produce Buyer
• The “profile” of today’s entry level buyer looks something like this:
• 25-35 years old ( Millennial)
• Bachelor degree required, MBA preferred
• Experience with a Consumer Product Group company a plus.
• Diverse ethnic and/or gender desired
• Broad interest base. Desires to move to different areas of the company.
Evidence Trail Of A Marketer
• Focus on CATEGORIES
• Pricing done to sustain or proliferate margin.
• Numerics replace product and/or supplier knowledge.
• Product positioning ( modular) may not compliment seasonal promotions.
• No risk taking.
• The relationship will be defined from bid to bid.
Merchant Vs. Marketer
• MERCHANT “ The activity of promoting the sales of goods at retail. Activities may include display techniques, free samples, on-the-spot demonstrations, pricing, shelf talkers, special offers, and point of sale methods”
• MARKETER“ A person whose duties include the identification of the goods and services , as well as the marketing of goods and services on behalf of a company.
• “ The activity or profession of producing information for promoting the sale of commercial products or services”
Key Words and Phrases
• Merchant - “Activity of promoting sales”. “Display”. “Pricing”. “Special Offers”
• Marketer – “Identification” ( analysis). “Marketing “( advertising) . “Producing information” ( reporting)
• Merchants are people of activity. Marketers are people of analytics.
The Contrast is Neither Good Nor Bad!
• It’s easy to get caught up in the “ … I wish it was the way it was….”
• It’s important to understand WHAT is happening, and WHY it’s happening.
• Business evolves. Rather than resist, adapt!
• Here are a few things we can deduce my dear Watson!
What Can We Deduce?
• Marketers will rely on current data to form the basis of their decisions. “ The numbers are the numbers” and the variations with produce from season to season will not be relevant in supplier discussions for the current year. Margin proliferation will trump sales.
• Risk taking will be kept to a minimum. ( jobs pay well!!)
• Buyer commitments will depend upon whether or not that buyer remains in the position long enough to act on it.
• Produce is not a living thing, it is a number in a category analysis.
• More emphasis will come from areas outside of the product itself, IE: packaging, fixtures, social issues.
• All of this is happening NOW, but the Marketers don’t see it as they have no perspective.
How Can We Respond? ( As a Supplier )
• Be skillful in analytics. Know your numbers!
• Be properly positioned in social issues. This won’t gain you advantage, but it will be the price of staying in the game.
• Document understandings. Know that buyers will change.
• Get into stores! Look for obvious opportunities. ( they are everywhere!)
• Diversify your portfolio. Play in all channels of distribution.
• Diversify your sales team! Mirror your customer.
• Remember that change happens on the periphery of business segments. Look for innovation at the fringe, not the core.
How Can We Respond? ( as a Retailer)
• Recognize that your suppliers may know more than you do! ( don’t worry…. This only hurts for a minute! )
• GET INTO STORES! ( look at your business from the eyes of the customer)
• Take risks! ( if you are sleeping well at night, you are too comfortable !)
• The produce business is about ITEMS, not categories.
• Stand for something in the eyes of the customer. ( M&S, Waitrose, and Aldi all stand for something. You must do so as well)
• Remember the adage…. “ what got you here won’t get you there!”
This Case May Be Solved!
• Watson, the merchant isn’t vanishing, it’s evolving!!
• Understanding the nuances between a merchant and a marketer is not just a semantic exercise, it has very real business applications.
• Evolving your business to compliment what is evolving at retail is elementary!
Summing Up
• What we understand as the historic “produce buyer” has been evolving for many years now.
• Publically held, globally influenced companies, which buy the majority of produce, have redefined the criteria for achieving and holding a produce buyer job. ( I would not even get interviewed!!)
• Public affairs and social issues can have a negative impact on stock price. And when the stock is getting hammered, buyers feel the heat.
• This is neither a good thing or a bad thing and needs to be viewed objectively.