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The New Dynamics of Produce Buying & Selling

The 2001 Becker Forum February 12, 2001. The New Dynamics of Produce Buying & Selling. Wen-fei Uva Dept. of Applied Economics and Management Cornell University. Research Conducted by Food Industry Management Program at Cornell University.

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The New Dynamics of Produce Buying & Selling

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  1. The 2001 Becker Forum February 12, 2001 The New Dynamics of Produce Buying & Selling Wen-fei Uva Dept. of Applied Economics and Management Cornell University Research Conducted by Food Industry Management Program at Cornell University Modified by Georgia Agriculture Education Curriculum Office

  2. Retail Industry Structure ... …fewer buyers??

  3. Supermarket Structure Sales of Top 8 Chains as a % of Total Grocery Sales % of total sales

  4. Top Line Recent deals Kroger (28.2) Fred Meyer (14.9) 43.1 Albertson’s (16.0) American Stores (19.7) 35.7 Buttrey (0.4) Sessells (0.2) Safeway (23.7) Dominicks (2.3) 26.5 Carr Gottstein (0.5) Ahold (14.3) Giant Food (4.2) 18.5 Acquirer Acquired Combined value $B

  5. Supermarket Structure Top 10 Firms as % of Total Sales...by country Percent of total sales Percent of sales

  6. Wal-Mart Sales,1989-2001

  7. Wal-Mart Stores, 1999

  8. Food Manufacturer Sales Top 20 Customers * * Projected Source: Bill Bishop, Kraft Extrapolations

  9. Department Profile

  10. Top Line department profile • Produce departments are growing at a faster rate than supermarkets: • sales • space • SKUs • Compression of SKUs currently--intensifying in the future MORE PRODUCE = GREATER PROFITS

  11. Produce Sales percent of total store sales

  12. Department Size • Average increase from 1994 - 2004 • 46% small firms • 40% mid-size firms • 29% large firms square feet

  13. SKUs *McLaughlin & Perosio (1994)

  14. Top Line the buying process • Buyers more focused on supply side-- negotiations, procurement & logistics, NOT demand side-- merchandising and consumers

  15. Produce Buyers number of buyers per firm • Responsibilities • supplier interaction • order entry • price changes • invoice problems • store level assistance

  16. Sources Over Time percent of produce purchases

  17. Sources by Firm Size percent of produce purchases

  18. “Spot Buying” percent of produce purchases

  19. Contracts

  20. Supplier Profile

  21. Concentration importance of retailers’ top 10 suppliers

  22. Top Line Sales of Top 10 & Top 20 WA State Apple Shippers percent of total sales

  23. Produce Suppliers “Average” firm 219 suppliers today BUT decreasing to 208 by 2004

  24. Preferred Supplier Attributes • Top Five Attributes • delivers consistent quality • consistent on-time delivery • price protection on rising markets • offers PLUs/UPC coding • large supply to fill majority of stores Year-round product availability not very impt very impt

  25. Technology

  26. Electronic Technology percent of produce purchases using

  27. Bottom Line Grower/Shipper Strategic Responses • Expand control • consolidate horizontally • integrate vertically • Develop new products • hybrids, niches, packaging • Undertake demand expansion programs • Adopt cost reducing technologies • Develop new distribution systems

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