The big are getting bigger. Consolidation is occurring throughout the economy, including the produce industry. There are fewer buyers, and each is building more muscle against the seller.
What is the little guy to do against all this power? Is the grower going to get squeezed even more? Is the day of the small-time local or area shipper about over?
Glen Terbeek has encouraging words. The times are changing, he said. He believes the door is opening wider for the small producer or marketer to enter and have a real impact with consumers. And the big chains will be willing to help.
The new landscape is evolving through a combination of factors, he said. The realities of the retail food business demand a new marketing and distribution model. And electronic commerce is here to stay. “The Internet is real, and the Web lifestyle will change the rules of competition,” he said.
Terbeek was a keynote speaker Feb. 9 at a three-day symposium held at Michigan State University on “The Food System of the 21st Century: Strategic Opportunities and Challenges.”
Currently Terbeek heads his own consulting firm, Breakaway Strategies, Inc., based at Hilton Head Island, S.C. He recently retired after 33 years with Andersen Consulting, where he specialized in the food industry and had clients from the United States to Europe and Japan. The last 10 years he directed the firm’s research and development center, SMART STORE, which studied global trends and issues in food retailing.
During that decade the Internet emerged from obscurity to become a force in business-to-consumer and business-to-business marketing. Today individual growers and farm marketers can set up their own web sites and inform customers around the globe about their products and services. They are no longer restricted to local markets but can complete transactions electronically and distribute products through package delivery services to nearly anywhere in the world.
Another Internet innovation, Terbeek said, is the recent entry of the company Priceline.com into food retailing. The customer can quote a figure to cover a list of groceries, and Priceline.com will find out if a local supermarket is willing to sell at that price. If so, the customer collects the goods at the store and saves money over the shelf-price cost. The system has been established in eastern metropolitan centers and was scheduled to be introduced into the Detroit area in late February.
But Terbeek sees more fundamental changes in the future, a restructuring of the entire food-retailing sector. He perceives the development of what he terms the “frictionless marketplace,” which would replace today’s essentially inefficient system, which, he maintained, has few strong advocates.
Consumers aren’t happy. Studies of their attitudes during supermarket shopping, he said, indicate a secondary peak of pleasure when they’re in produce departments, but the primary peak occurs when they leave the store.
Retailers aren’t happy. He said their profit margins are so thin that they would be operating at losses if not for slotting allowances, the fees they charge suppliers simply for access to the store’s shelves.
Suppliers aren’t happy. They don’t appreciate having to pay that shakedown-type money and would rather spend it in different forms of marketing efforts. “What manufacturers really want is direct access to the shopper,” Terbeek said.
Small suppliers are especially unhappy, because they cannot afford those slotting fees. The startup company or other small operator finds such upfront costs an insurmountable barrier to reaching the consumer.
But help is coming, Terbeek said, in the form of what he terms the “barrier buster.” This will be a whole new type of enterprise in a new kind of network between the supplier and the consumer.
He envisages that supermarkets will become smaller in the future because rather than supplying a panoply of goods and hoping that shoppers come there and find what they want, the stores will instead function as “agents of the consumer.”
Chain stores will become both real and virtual or electronic. The latter will establish communications directly with consumers through the Internet. Consumers will contact them with what they want, and the store will function as the agent to find it.
Currently there is a lot of redundancy in the distribution system, since each chain has to stock its own warehouse and from that site supply its individual stores. In the future, Terbeek said, the “barrier buster” will be formed as a regional warehouse to serve all chains and other retailers. It will be an independently managed entity functioning to make the logistics of distribution more efficient.
Thus, when a customer wants a product just learned about, perhaps via the Internet, the retailer-agent, when contacted, will not have to worry about not having the product in its own store or warehouse. The “barrier buster” warehouse will have it readily available.
Terbeek explained that manufacturers would pay standard fees to a barrier buster for inventory management and distribution. Under such a system, he said, the small company would operate on the same even playing field as the multinational manufacturer. Small, new companies can have access if they can create those “moments of desire” on the part of consumers and build the level of demand.
So, for instance, if you have a new flavored cider blend, or a new dried-vegetable snack food, or your own special-recipe chutney, and if you stir interest in it, you can have it on call at the barrier buster waiting for the retailer to secure it as the agent of the consumer.
Major manufacturers will appreciate the new system, Terbeek said, because they can divert the billions they now spend on slotting fees and other costs of getting their products into the stores. Instead they can allocate those resources toward trying to influence consumers directly.
And small suppliers will appreciate the new system because they can get their foot in the door despite limited capital.
Imagine this scenario in the “frictionless marketplace.” A story in a newspaper highlights your guacamole and mentions your web site. Readers check out the web site and they decide to try some of your recipes listed there. They call or e-mail their local grocer. The grocer secures your guacamole from the barrier buster. Consumers try it and like it. Distribution widens. Sales expand.
A lot of marketing changes will be taking place through electronic commerce, and as it evolves, Terbeek said, it will enable the small, sharp operator to compete effectively with the giants.
