To avoid being caught in the intensifying retailer competition and inevitable focus on price, producers need to intimately understand their retail and end consumer, reduce costs whilst improving efficiencies, innovate and think differently.
The majority of fresh produce consumed in Australia is grown domestically, and prices are generally supply determined, rather than demand determined, which provides a level of protection. The inability of retailers to import fresh produce widely and the pro-Australian sourcing appetite of consumers, means retailers will be dependent on domestic supply and have to invest more resources to ensure they have a vendor base that is capable of meeting these needs. (Whilst out-of-season supply has good growth potential, they must be categories that are deemed acceptable by consumers, for example, out of season mangoes, citrus, stone fruit etc., and in line with FTAs).
For producers, it’s important to do the basics well, and make sure retail customers receive the right quality product in full and on time. There will be a greater need to ensure consistency in product quality, and this will be exacerbated by the increasing growth of the majors and need for greater volumes to meet demand. In addition, retailers’ growth will become increasingly dependent on the capabilities of their suppliers, with the more capable suppliers becoming increasingly more influential and gaining a louder voice.
In regard to technical expertise, specialist knowledge of fresh foods will become a core competency for success (understanding seasonality, varieties, cool-chain management, ripening technology, handling and merchandising displays etc). Retailers will increasingly directly employ industry experts and consultants in-house to provide specialist information, including technologists, agronomists and supply chain experts, so it’s important for producers to be appropriately skilled or risk becoming redundant. There’s also an opportunity in Australia, compared to say Europe or the UK, for technical improvement around food safety and quality assurance, and engaging with retailers on a technical level to tackle some of the tougher challenges, such as environmental degradation through declining soil health, water usage and improving consistency in product quality. The challenges around farm labour and use of hire companies are also a critical part.
In order to achieve a differentiated customer offering, retailers will focus upon Intellectual Property and exclusivity. Suppliers that can secure IP and exclusive access to better tasting varieties, and access to varieties with, for example, high ‘functionality’, such as longer shelf-life and higher vitamin content will in turn secure their future. As has happened internationally, retailers will look to make customer-centric claims and communicate their unique initiatives around provenance, sustainability, business ethics, organic and non-genetically modified etc.
Retailers are likely to embrace closed-system production that takes advantage of new technology to ensure year-round security of supply quantity and quality, such as greenhouses using LED lighting and elevated carbon dioxide to increase yields to lower long-term production cost. Similarly, high density orchards that are designed for mechanical or robotic harvesting will improve product uniformity with more fruit falling within supermarket specifications and reduce the dependency on seasonal labour. These innovations are capital intensive with long pay-back periods and are likely to drive further industry consolidation and corporatisation of farming.
The retail market in Australia is undergoing more change that it has in the last 40 years, and as the retailers are raising the bar for their consumers, so must growers and suppliers. It is important to challenge existing business models, look to innovate, and most importantly, ensure the right skillsets are in the business at the right time. Now is the time to take advantage of the changing retail landscape, as ultimately ‘change’ can also mean opportunity – and those that make the move first will be the ones reaping the benefits!
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