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.

•  Thank You

•  Bruce Peterson – Peterson Insights, Inc.

•  bpeterson236@gmail.com